Transparent Value Blended Index – Is it all it’s hyped up to be?

There’s always new annuity products coming out, some different, some the just rehashes of the same old stuff. One new thing that’s popped up recently is the Transparent Value Blended Index as a crediting method in the Security Benefit Total Value Annuity (TVA). We’ve published an in-depth review of the TVA you can find here. That review, however, was made before this new index.

So let’s dig in, and see if the TVBI is going to make a big improvement.

Transparent Value Blended Index: Better than Sliced Bread and Power Steering?

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This new crediting method is based on a new index. The general principal of the index is to avoid stocks that do not have a high probability of reaching certain sales/revenue goals in order to justify their current share price. In other words, avoid the stocks that could go down in price.

On the surface this is a good idea. The downside, of course, is that’s the very thing thousands of money managers have been trying to do for a hundred years (mostly failing). When looking at a crediting method, always be careful. Some agents don’t always do a great job of explaining how they work. Worse, some will suggest returns are possible, that simply are not.

Case in point – here’s a comment we recently received here on our blog:

Subject: Total Value Annuity

Comment:
Agent I spoke with indicated potential of 8-12% returns with the Security Benefit Total Value Annuity.  Can you address this?

Short answer – potential for and realistic expectation of 8-12% are two very different things.

Part of the reason agents make return assertions such as that is due to the “backtesting” of indexes that don’t have much actual history. In the case of the Total Value Annuity – it has the Trader Vic Annuity Linked Index as well as this new Transparent Value Blended Index (plus more traditional crediting methods using indexes such as the S&P 500). Both have excellent backtested returns, but very limited actual history.

Here’s the live history of the Transparent Value Blended Index:

Courtesy of www.FT.com - i.e., The Financial Times

As you can see, the index has only been around for about 4 months. So if an agent suggests by linking your returns to this index gives the potential for 10%ish returns – just call their bluff. There’s no actual performance to substantiate such a claim, and in reality, the S&P 500 has actually done better in this short time period.

To be fair, Annuity Gator actually does like this index and this crediting method. It has great potential. What you need to be careful with though are dishonest agents that try to tell you this index has really good long term returns.  It doesn’t have long term returns. It has potential to generate good returns, and that’s where the conversation should end. A good, honest agent will be clear to point out there are some limitations (holding period to earn interest credits) and that is why there is also good potential.

Simple Fact about Index Annuity Returns

Index annuities can actually be a great part of a retirement income plan. Unfortunately, they do not produce big returns (8%-12% for example is very unrealistic). That’s not what they were designed for. Rather, they produce modest returns (2% to 5% on average) with very little risk. They can also have riders that guarantee lifetime income, which can be helpful for some retirees (though the real returns on those riders is usually 0%-4% – even though many agents will say otherwise).

What it boils down to is this:

When you give an insurance company money for an annuity, they invest those dollars on your behalf. They are required to have most of the money very conservatively invested. As a result, they might earn 3% to 6% on the money you give them in today’s low interest rate environment. In the future, they may be able to earn a higher return, but that could take quite a while to materialize.

From that 3% to 6% return they need to cover their operating expenses, pay the annuity holder benefits, and produce a profit for shareholders. On average, most insurance companies have about a 30% gross profit margin. This means that they can only pay the annuity holders 70% (or so) of the returns they make after investing your money.

It doesn’t matter what crediting method you choose – your money is not actually going into any index. It’s going into a very diversified, conservative portfolio managed by the insurance company (or company the insurance company hires for management).

As a result, regardless of how fancy any index crediting method sounds – the likely returns to the investor is most likely going to be in the low to mid single digits. If it sounds too good to be true (big returns with no risk), then it probably is.

To reiterate a point made up above: Annuity Gator does like the potential of this index and how it works with some of the riders on the Total Value Annuity. Just beware of the agents that only paint unicorns and rainbows. No annuity or index is always right for all investors. The most important thing is having realistic expectations – and that with those expectations your financial needs are met.

Have Questions About This Annuity?

If you’re thinking of using this annuity, make sure to reach out.  You can contact us via our secure contact form and get questions answered within 24 hours via email. Nobody will be calling you over the phone or trying to sell you anything. Just a little free help to point you in the right direction.

One thing many of our website visitors find really helpful is sharing how this (or other) annuity is trying to be sold to them. We then peel back the layers and show you how it really works. In the end, if it’s a good fit, you’ll know. If it’s a lousy fit, you’ll be glad you found out before locking your money up for a long term.

Have an Annuity You’d Like to See Reviewed?

No problem, our team of highly trained annuity geeks can jump to it! Click here to get started and we’ll do our best to get it online as soon as possible.

Ask Us a Question

If you ever need to ask specific questions or need some one-on-one guidance (for free and with no pressure, of course), feel welcome to reach out by clicking here. We’d love to hear from you.

Cheers,

The Annuity Gator Team

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26 thoughts on “Transparent Value Blended Index – Is it all it’s hyped up to be?”

  1. Justin Kirkland

    I show that the index is up over 8.5% for the year so far….without a cap, is that bad? Would you, personally, rather have 100% of an 8% return, or 3% of a 20% return? Even on a five year allocation, let’s say that one year is down (which is fair, since the S&P has been down one year in the last 5). You get 3% compound interest on 4 of 5 years with a AP2P cap. Let’s say the same dip of 4.5% (like 2008-09) happens again in my example with the TVBI. So you take a 4.5% loss in one year, and you make 8% each year after (the index is up over 8% in 7 months, which means that an 8% annual return is definitely possible, if not probable). That is 27.5%, minus the spread (2.5% over 5 years), which nets the client 25% gain. On $100K, they have $125K. With the cap in my example, you would have just over $112K. Let’s say the TVBI only does 5% per year, again with the 4.5% drop. That is still $115K to the client, which is more than an annual reset with a 3% cap. Thoughts?

    1. Annuity Gator

      Hi Justin,

      Nope, that’s not bad at all! But you have to wait 5 years for the full uncapped credit and there’s still a long ways to go before anyone knows what that will be. We’ll keep a close eye on it though over the next few years to see how it holds up. The first unique index assigned to the Total Vale Annuity is down over it’s first few years, though it was illustrated to be very steady and able to produce exceptional returns. So we should not get too excited just yet about the Transparent Value Blended Index.

      Cheers,

      Annuity Gator

  2. Scott Payne

    I know this is on the TVBI index but in reference to the 8-12%, I believe that number is representing the stacking growth of 4% for the income rider. So 4-8% return which is a more realistic “range of reality”. You also fail to mention that the income rider boasts a very attractive payout schedule with the payout @ 65 being 5.5% and increasing annually by 10 bps. The growth only strategy you are referencing makes up for about 12% of the applications with the remaining 88% being submitted for income or death benefit, primarily income. The ability to trigger income after 30 days, large upfront bonus and industry leading payout factors… you have the best immediate income FIA in the industry… PERIOD!! Add an uncapped index to maintain the account value during the income phase and you have a solid option for retirement income. Comments??

    1. Annuity Gator

      Hi Scott,

      Thanks for finding the site and adding your thoughts.

      I wish you were correct on agents suggesting 8-12% as part of a roll up, but we’ve seen plenty suggesting that just the index credit alone will be in this range. It’s possible, but awfully big expectations to give someone. Plus, since the roll up is funny money (you can’t really take that out) it’s really not part of the return.

      Payout schedules are good on Security Benefit annuities, but that alone doesn’t make them right for everyone. For example, Vanguard offers an annuity with income guarantees just 0.5% less than Security Benefit, but has no commission, no surrender penalty (fully liquid from day 1), and 100% upside from a massive list of index fund investments. In terms of possible upside, it’s far greater than Total Value. In terms of minimum income guarantee, it’s not a whole lot less.

      What a lot of agents fail to understand when they make an ALL CAPS definitive statement like yours – is that with a 5.5% income payout guarantee, it still takes 19 years just to break even (get your initial investment back). Because of this investors really need to look at the non-guaranteed elements of the annuity as well and ask them self, “outside of the guarantee, how will my money perform given I have a 19 year time horizon with this annuity?”

      In the case of my comparison above (Security Benefit vs Vanguard) – while nothing is guaranteed, it is highly, highly likely the Vanguard annuity would perform substantially better. This is because it can use a fully diversified portfolio, has much lower costs, and has no capping of returns. The Transparent Value Blended Index has no cap currently, but that could change at any time, so there’s no way it can match the upside.

      Any way, thanks again for the comments. The Total Value Annuity with Transparent Value Index is a fine annuity. I think it will do very well for a lot of people. Just know that it’s not the only game in town and every investor should look at all their options before charging forward with this (or any) annuity.

      Best,

      -Annuity Gator

  3. Gosh, the statement that the “Blended Index” can change caps etc. at anytime? I believe they are locked in for 5 years with no change possible? In addition of course a stock market related annuity such as Vanguard “can” perform better and in an up market certainly would. But does the Vanguard offer lifetime income without annuitization, can the Vanguard loose 40% of its value in a 2008, does it double the income stream if LTC is needed?

    This type of fixed annuity is used to guarantee and income for life, protect principal, provide a higher death benefit and more. I agree that this time of annuity should be used for a portion of retirement income-not to beat the Stock Market on a long term basis.

    1. Annuity Gator

      Hi Dan,

      Perhaps you misunderstood.

      Once a contract is in place the spread and participation rate cannot change. It can change, however, at the renewal term. It can also change at any time for new annuity holders (i.e., the rates could change next month, in two months, etc). You can read on page 16 of the general product brochure here: http://www.sbelitepartners.com/media/73765/tva_consumer_brochure.pdf some of the details on this; or, by looking at the products Statement of Understanding.

      The other questions/comments you have don’t really make sense. The example of Vanguard Index funds is not meant to imply an all equity portfolio or something that can lose money; but rather a conservative, diversified mix of funds from a company like Vanguard (low cost index funds). If you do a little homework, you’ll find that Vanguard does in fact offer an annuity with full principal protection, never any caps or spreads, very low fees, and income for life guarantees just 0.5% per year lower than the TVA. It’s not perfect, but it’s not bad either. Sort of like the TVA (not perfect, but not bad at all either).

      Like you mention, for some people and some money, annuities are great. For all people, all the time, they do not.

      As I’ve pointed out many times, annuities should not be illustrated nor expected to get high returns. They should be looked at for their contractual guarantees, which are more than adequate for many people, but will usually be in the low to middle single digit annualized return range.

      Hope that clears up the confusion,

      -Annuity Gator

  4. A couple of other things related to the Security Benefit Total Value Annuity that is linked to the TVBI are the 10% first year purchase payment bonus and the Home Health Care Doubler. These both seem to be very positive features of this annuity, especially when added to the guaranteed minimum interest, income rider that allows you to benefit from market increases but not downfalls, and low management fee (>1% only on income rider). These all make it sound too good to be true, or am I not understanding these features properly? It has been nearly eight months since your first posting about this index. Any new insights to share?

    1. Hi and thank you for your message. We have been in the process of updating and adding to the AnnuityGator.com website. So, please check back soon to find additional details. If we can help further, you can also reach out to us via phone, toll-free, by calling (888) 440-2468 to speak with one of our annuity experts. Best. – Annuity Gator Team

    1. Annuity Gator

      Hi Joe,

      Thanks for adding to the discussion with a solid question.

      Every person and situation is different, and each annuity works differently based on those situations. In general, I really like the Total Value Annuity. I like to measure annuities based on two questions:
      1) If things work out as planned, what will this annuity provide / return? (think of this as the optimistic scenario)
      2) If markets do poorly, what is my worst case scenario?

      In the optimistic scenario I’ve yet to test an annuity that beats the return potential of the TVA. In the pessimistic scenario the TVA tests well, but is not the best. As an overall combination (ranking all the products I’ve tested on those two factors) TVA ends up #1.

      Just know that as I pointed out to start this feedback – every situation is different and the TVA certainly is not good for everyone. The best way to know how / if it would work for you is to simply reach out via the “have an annuity question” form on the site. From there my team can be more more specific in answering questions and helping to point you in the right direction.

      – Annuity Gator

  5. I’m almost sorry I read this post of the TVBI product. Now I am unsure, as usual, of what to do. I am not a sophisticated investor, in fact I am a conservative non-investor. I have a 401k, a pension and will have social security in a few years at age 66. I was looking at taking around half of my 401k and rolling it into the TVBI. Reading the comments, I don’t know if I should. The problem is, I don’t know if it is the right thing to do for me or not. The guy I have been talking to tells me about the 4% minimum and then did an analysis showing me the recent performance of the market had the fund been in existence, the worst, median and best 10 year periods going back to the 90’s. I don’t think he is selling me fairy dust and rainbows but I still don’t know what to do.

    1. Hi John – Thank you for your message. We would be happy to answer any of the questions that you have about the TVBI product, as well as to run some scenarios in order to determine what may be best for your specific situation and goals. Please feel free to contact us via phone in order to discuss. We can be reached toll-free at (888) 440-2468. We look forward to talking with you. Best. – Annuity Gator Team

    2. Hi John – Thank you for your message. We would be happy to discuss some potential options with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  6. I have the TVA with the TVBI Account Rider. I have not annuitized at this point and will be coming up on year two of my contract period. I have two Federal pensions and also Social Security. My present pensions are very good and I purchased the TVA as insurance against any degradation to my pensions due problems with Social Security. Given the fact that our economy is about to explode due to massive indebtedness (some estimates that include off-the-books debt show a National debt of 700 Trillion!!!) I am tempted to take the surrender value of the TVA and play the market with Futures and Options (or buy food, gold, guns, and a good horse:-) I have got to believe that there is a lot of behind the scenes fear of what appears to be inevitable. Either way, I feel queasy about the TVA’s ability to stay up with inflation let alone pay a reasonable (4-6%) return. Got any better ideas?

    1. Hi John – Thank you for your message. We would be happy to discuss some potential options with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  7. RC Montanaro

    We have the Transamerica Variable annuity with a guaranteed 6% return on our contribution. Recently an agent has pitched the Security Benefit Annuity with the income rider and a long term care rider stating that switching Is a no brainer since the annuitization of the variable annuity could run out if one lives beyond the expected normal life expectancy. Your thoughts. And what about a single value annuity. Does a single value annuity perform better that Vanguard. And can you recommend one worth looking at.

    1. Hi RC – Thank you for your message. Before moving funds out of a current annuity, there are several factors to consider, such as how much longer the surrender period is, as well as what you are wanting the annuity to do for you in terms of income, potential death benefit, funds for a long-term care need, etc. We would be happy to discuss some possible options for you. First, though, we would need to get a bit more information from you in order to provide you with the best suggestions. Rather than emailing back and forth personal financial details, it would be best to chat via phone. Please feel free to contact us directly at (888) 440-2468. We look forward to speaking with you. Best. – Annuity Gator Team

    2. Hi RC – Thank you for your message. We would be happy to discuss this scenario with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  8. ANNUITY GATOR: I purchased the Security Benefit Total Value Annuity with MVA with my IRA Rollover $$$ of about 54K. I was teased with the 10% immediate funding and 4% guaranteed return with no loss of principal. I invested with the intention of cashing out in 10 years, most likely with a monthly payout for life, but maybe lump sum if the “market” returns were 8-12% annual (yes, that is exactly how I was pitched – like it was a long historical return for this fund).

    After a year, the S&P is up about 15% and my investment is (you guessed it) gained 4%. I was told I was mostly in commodities which “tanked” and I ask for a link to the fund’s performance and I am stonewalled. To this date, I still cannot find a link to the fund’s performance.

    OK the question…..I vaguely understand the “spread.” My statement is broken down into 2 numbers – $43K and $14K. I read this to mean $43K is liquid and I forfeit the $14K (and similar numbers throughout the ten years of the life of the contract). I understood if I choose the lifetime monthly (or annual) benefit at contract maturity, I will be paid based upon BOTH numbers, but if I cash out, I would receive only the smaller number (which will be larger than $43K in 9 more years, but probably close to what I originally invested). So whattup with that? Is the “catch” really that Security Benefit needs 30% of all the profits earned to “run their operation” and that equates to negative growth of my principal balance, but 4% (or more) of my contract balance? Are they banking on early withdrawal penalties to help fund their operation? I guess I just thought (like many) with the stock market on a record run, that my TVA would reflect way above 4% returns.

    Still no real question…sorry 🙁 Just trying to get a better idea of what “might” happen over the next 9 years with my TVA, presuming the S&P will average 6% increases (as is traditional). What I seem to be hearing from you is that my TVA will return its guaranteed 4% pretty much regardless of what happens with the stock market and ONLY if I choose the lifetime payout wil I gain the benefit of that 4% guaranteed return (and if I live to 100 – will indeed beat the system). Does that pretty much sum it up?

    I thank you in advance for attempting to sort through my drivel. 🙂

    1. Hello – Thank you for your message. We would be happy to discuss this with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  9. I am uncertain if this is the right place to ask my question. If it is, I am looking at a total values annuity by Security Benefit and I am concerned about Security Benefit’s strength. They do not seem to have a very high rating. I have most of my money with Mass Mutual and they seem to be really reliable. Can you advise ?
    Don S Redd

    1. Hi Don – Thank you for your message. We would be happy to walk through some possible scenarios with you regarding the Security Benefit annuity in order to determine whether this would be your best option, or possibly another alternative. In doing so, we would need to get a bit more information from you. Rather than sending personal info back and forth via email, though, it would be best to discuss through a call. Please contact us directly at (888) 440-2468. We look forward to talking with you. Best. – Annuity Gator Team

    2. Hi Don – Thank you for your message. We would be happy to discuss some potential options with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  10. I just took out a Security Benefit Annuity with a 34% allocation in the S&P 500 annual point to point Index and 66% in the Transparent Value Blended Index account. At this point, I am just in it for account growth and thus am not interested in income withdrawals at this time.The contract is for 10 years.Have I made a correct choice in the indices invested into?

    1. Hi Frank – Thank you for your message. The right index(es) will actually depend on several factors, including what your goals are for the annuity, and your time frame to retirement. We would be happy to discuss your allocation further, but we would need to get some additional information from you in order to provide you with the most appropriate advice. Rather than emailing personal details back and forth, it would likely be best to discuss via phone. Please feel free to contact us directly at (888) 440-2468. We look forward to talking with you. Best. – Annuity Gator Team

    2. Hi Frank – Thank you for your message. The Security Benefit annuity could be a good choice for you, depending on your specific needs. We would be happy to walk you through how this particular annuity works, as well as any other options that may fit with your situation. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

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