Today we tackle the Riversource RAVA 5 Advantage Variable Annuity. If you have read any other reviews here than you know that I am not a big fan of variable annuities because of the fact that: they typically have high fees + they expose the principle balance to market downside + are usually very complex fee and payout structures + they usually contain onerous withdrawal penalties. Is the Riversource RAVA 5 Advantage Variable Annuity any different? In my opinion it isn’t, it only attempts to look like it is. I did make a promise to another analyst here at AnnuityInvestigator that I would be fair minded in this review and discuss the potential positive aspects of the Riversource RAVA 5 Advantage Variable Annuity. (Who says I’m not fair minded? I think I am being fair minded, I just don’t like variable annuities that much compared to other options). Anyway, here goes.
To get started an annuity is just a contract between a person (like you) and an insurance company. Usually people who are looking into annuities are looking for certain contractually guaranteed financial terms and/or outcomes. Most often people who are interested in annuities are attracted by the guaranteed lifetime income stream that annuities can provide and usually they are also seeking to grow their money; which potentially is something else that annuities can provide. Additionally they may be interested in other features like death benefits or in-home health care benefits that some annuities may offer.
What’s the Difference Between Variable and Fixed Annuities?
Although the financial goals and objectives for people interested in annuities are usually quite similar, the way different types of annuities help people achieve those goals and objectives can be completely different. Fixed index annuities can provide a guaranteed income stream for life. Variable annuities can also provide a guaranteed income stream for life. Additionally fixed index annuities can grow your money. Well variable annuities can grow your money too. What’s the difference?
With fixed index annuities your money is never at risk due to market downturns. So what this means is that if the market goes up your money can go up, but if the market goes down your money won’t follow the market down.
With variable annuities your money is at risk of being lost, your money will follow the market down. Worst case? Your money is all gone. Is that a probable or like scenario? No, but be aware of potential. However just like with the fixed index annuity your money can follow the market upwards.
Why would anyone choose a variable annuity over a fixed index annuity? The fixed index annuity does not have the potential market downside losses that the variable has. Why would anyone risk their money to market downturns if they didn’t have to? Drum roll please and the answer is: Risk vs Reward. The typical variable annuity offers a lot more upside potential than the typical fixed index annuity, so consequently it can potentially offer more lifetime income.
Let’s start out with some quotes from the Riversource RAVA 5 Advantage Variable Annuity prospectus:
“There are many factors to consider carefully before you buy a variable annuity and any optional benefit rider. Variable annuities — with or without optional benefit riders — are not right for everyone. Make sure you have all the facts you need before you purchase a variable annuity or choose an optional benefit rider.”
“Variable annuities are insurance products that are complex, long-term investment vehicles that are subject to market risk, including the potential loss of principal invested.”
So keep in mind you can lose money, but let’s take a look at how you can grow your money with the Riversource RAVA 5 Advantage Variable Annuity. After you open your Riversource RAVA 5 Advantage Variable Annuity account you are given the option of investing your money in hundreds of different investment choices. I did not count them all, but the list starts on page 15 of the prospectus so be sure and have a look yourself. The choices run the gamut, from low-risk and low-yield bond portfolios to high-risk and potentially high-return aggressive allocation portfolios.
After you have made your choices of investments be aware of the associated fees and expenses. There does not appear to be any admin fee with the Riversource RAVA 5 Advantage Variable Annuity, but there are many other fees and they can add up to bring down net earnings. It is possible that your total maximum annual fees and expenses could be in the 3.08% annual range with the Riversource RAVA 5 Advantage Variable Annuity once everything is accounted for (Separate Account charges, Mortality & Expense Risk charges, investment-related fees, management and maintenance fees, withdrawal fees, plus others).
Riversource variable annuities do offer an optional living benefit income rider which can provide you and your spouse with a guaranteed income stream for life. This option is not free and you must chose it when opening the account, the maximum annual fee in most states at the time of this writing is 2.25%. So add that to the ~3.08% in maximum annual fees and expenses from above and you have a pretty expensive investment vehicle. As you can imagine a product that generates so many fees is very lucrative for the insurance company and typical variable annuity contracts reward the agent/advisor handsomely. I think I just saw your advisor stepping out of their new Mercedes over there by the 18th hole. Is that a Louis Vuitton handbag she was carrying?
High fees, high risk. Is it right for you? Potentially yes, it might perfectly help you execute your financials plans and has the right balance between risk-vs-reward for you, but please consider it carefully. There is no need to rush into the Riversource RAVA 5 Advantage Variable Annuity. Read some of our other reviews and make sure you compare it to some of the fixed index annuities.
You may be able to tell from the review that I am not a big fan of variable annuities, but I did try to be as fair minded as possible. My take on variable annuities is if you what you are looking for is uncapped growth and you are willing to take the downside risks of the market than just open a brokerage account and invest in the positions directly. This way you are going to save on all the variable annuity related fees and you can access your money without having to worry about penalties.
If you are still considering a variable annuity and want to be sure it is right for you than make sure you get the annuity tested. We can do that for you here at AnnityInvestigator and we can help you determine if the returns that your agent or advisor is illustrating for you are realistic. We can also answer additional questions and give you some ideas about strategies that mirror the upside potential of variable annuities but don’t have the downsides of variable annuities (high fees, withdrawal penalties, no downside protection).
For Your Eyes Only
This is an independent product review, not a recommendation to buy or sell an annuity. This review is not endorsed by any insurance company and I do not receive any compensation for this review. This review is meant to be an independent analysis to provide the reader with information and concepts to help them make informed decisions. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are property of their respective owners.