If you are not familiar with the term, an annuity is just a contract or agreement between a person (like you) and an insurance company. Commonly people who research (and may ultimately end up investing in) annuities are looking to grow their money, and for the lifetime income stream option that many annuities offer.
The lifetime income stream is called a living benefit because you get the benefit while you are living. Keep in mind that the lifetime income stream is a separate feature from the growing your money feature. Though many (most) fixed index and variable annuities offer both features, the two features are distinct and separate and having one does not guarantee that an annuity has the other.
You: You mentioned fixed index annuities, I have heard of them. What is the difference between fixed index annuities and variable annuities?
Me: With fixed index annuities the growth of your money is tied to an index like the S&P 500 Index. Your money is not actually in the market so it 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.
Me: With variable annuities your money is at risk of being lost. Your money is invested in the market so 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. The Transamerica Variable Annuity Series X-Share offers many different ways to invest your money in the market, but be careful the performance of the different account choices can vary dramatically (and also be aware that the performance results shown in the performance report does not take into account the variable annuity fees and expenses).*
You: Why would anyone choose a variable annuity over a fixed index annuity?
Me: Because although the fixed index annuity does not have the potential market downside losses that the variable has, the typical variable annuity offers a lot more upside potential than the typical fixed index annuity. Bottom line is that you potentially could grow your money faster in a variable annuity.
According to the product brochure, some of the features of the Transamerica Variable Annuity Series X-Share are:
A comprehensive lineup of investment options from some of the most recognized money managers in the industry.
Automatic asset rebalancing
Maintains the asset allocation balance selected by automatically transferring money between investment options on a regular basis without generating a taxable event, so the original allocation objectives are maintained. Restrictions apply. Please see prospectus for details.
Dollar cost averaging
Allows for gradual investment over time, systematically buying more units when prices are low and fewer units when prices are high. This can potentially lower the average cost of variable units.
Dollar cost averaging requires regular investing regardless of fluctuating prices and does not guarantee profits or prevent losses in a declining market. Individuals should consider their financial ability to continue transfers through periods of both high and low price levels. Amounts allocated to the subaccounts of the separate account are subject to investment risk, including possible loss of principal. Restrictions apply. Please see prospectus for details.
During the accumulation phase, 12 free transfers between subaccounts are allowed each year without a fee. Restrictions apply. Please see prospectus for details. ($10 fee per transfer, thereafter.)
The opportunity to receive guaranteed lifetime payments through a variety of payment schedules and options, should the policy be annuitized. Annuitization is permitted after the 3rd policy anniversary. 1st policy anniversary in New York and Florida.
Fees, penalties and fine print. And the Transamerica Variable Annuity Series X-Share has lots of them. Are you ready?
*Fees & Expenses: The annual costs associated with this annuity can vary dramatically from year-to-year. There are fixed charges administrative costs and optional benefits, but there also are portfolio fees and expenses that can change depending upon the costs associated with the underlying investments.
Penalties: If you take partial or full withdrawal during the first 9 years of the contract you may be subject to a 9% recapture provisions.
Fine Print: The prospectus for the Transamerica Variable Annuity Series X-Share is 138 pages long.
Higher fees, higher risk. Is a Transamerica Variable Annuity Series X-Share right for you? Not sure…does it perfectly help you execute your financial plans and has the right balance between risk-vs-reward? If you’re not educated fully on it, or how it will affect the rest of your portfolio, slow down and please consider it carefully.
There is no need to rush into the Transamerica Variable Annuity Series X-Share. Read some of our other reviews and make sure you compare it to owning a low cost portfolio of indexed funds, or if you want to limit losses, compare it to some of the fixed index annuities reviews on this site.
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 want uncapped growth and you are willing to take the downside risks of the market, then research opening a brokerage account and invest in the positions/funds 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 AnnuityInvestigator 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 Consideration
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.