Introduction
A variable annuity is a type of insurance contract designed to provide tax-deferred growth and lifetime income while offering exposure to market-based investments such as mutual funds, stocks, and bonds. Unlike fixed annuities, which offer a guaranteed interest rate, and indexed annuities, which provide returns linked to the performance of a market index, variable annuities allow policyholders to allocate their premium to a range of investment options known as sub-accounts. These sub-accounts can grow or decline based on market performance, meaning the returns, and therefore the income payments, are not guaranteed and can fluctuate.
This article offers a comprehensive review of the Transamerica Advisory Variable Annuity, detailing its features, sub-account options, fees, benefits, and overall suitability to help you determine if this product aligns with your financial goals. After conducting extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Transamerica Advisory Variable Annuity (RILA) will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Who Is This Annuity Suitable For?
- What I Don’t Like About this Annuity
- Company Details
- Conclusion
Product Description
The Transamerica Advisory Variable Annuity is a flexible premium, deferred variable annuity designed for long-term investment growth and tax-deferred asset accumulation. Policyholders can allocate their premium payments among a wide range of investment sub-accounts within a separate account, which offers exposure to different underlying fund portfolios. The value of the annuity fluctuates based on the performance of the selected sub-accounts, and while there is potential for higher returns, there is also the risk of loss.
This annuity might be ideal for investors with a long-term time horizon, as it provides options for lifetime income, customizable investment strategies, and additional features such as dollar-cost averaging, systematic payouts, and death benefits. However, it may not be suitable for individuals seeking a guaranteed, fixed rate of return or those who prioritize short-term liquidity.
Let’s have a look at the high-level fine print of the Transamerica Advisory Variable Annuity, and then we will discuss each point in detail.
| Product Name | Advisory Variable Annuity |
|---|---|
Issuing Company | Transamerica Life Insurance Company |
AM Best Rating | A (3rd of 13 ratings) |
Maximum Issue Age | 95 Years |
Minimum Initial Purchase Amount |
|
Subsequent Premiums | Minimum $50 - Maximum $60,000 |
Investment Options | Can invest in multiple subaccounts across Equity, Real Estate, Fixed Income, and Balanced Asset Classes |
Plan Types |
|
Investment Management Companies | Vanguard, Dimensional Fund Advisors, Transamerica |
Surrender Charges | No Surrender Charges |
Withdrawals Tax Implications | Depends on the plan type; 10% early withdrawal penalty for distributions that are taken before the contract owner is 59½ |
Death Benefit Options |
|
Fees and Charges | $25 service charge at the time of issue, with a waiver threshold of $25,000 |
Risk of Loss | Yes |
Product Policy
How Does the Transamerica Advisory Variable Annuity Work?
Any annuitant can invest in the Transamerica Advisory Variable Annuity with a minimum initial investment of $1,000, and in return, they will earn interest based on their chosen investment options. This annuity is designed to provide flexibility and long-term growth potential through market-based sub-accounts. Below is a breakdown of how this annuity works based on its structure and features:
Premium Payments
- The annuity allows flexible premium contributions, meaning you can make additional contributions over time.
- The initial premium and subsequent contributions are allocated to sub-accounts that invest in different underlying portfolios, such as stocks, bonds, or balanced funds.
Investment Options and Separate Account
- Policyholders can choose from a diverse selection of sub-accounts managed by professional fund managers.
- The annuity operates within a separate account, meaning the value of your annuity depends entirely on the performance of your chosen investments.
- The exhibit below outlines the available sub-accounts across various asset classes, including Equity, Real Estate, Fixed Income, and Asset Allocation, along with their respective net fund expenses. We will provide a detailed discussion on the applicable rates and fees in the next section.
3. Account Value Fluctuation
- The account value changes based on the performance of the sub-accounts. If your chosen funds perform well, the value of your annuity increases. However, if the market declines, the value of your annuity may decrease, meaning there is a risk of loss.
4. Living and Death Benefit Options
- The annuity offers optional living benefit riders, such as lifetime income options that provide payouts for as long as you live.
- A standard death benefit is included, returning the greater of the total contributions or the account value to your beneficiaries.
5. Systematic Payouts and Withdrawals
- Policyholders can set up systematic withdrawals to receive regular payouts while keeping the remainder of the annuity invested.
- There are no surrender charges, making this annuity more liquid compared to traditional variable annuities. However, withdrawals may still be subject to taxes and penalties if taken before age 59½.
Example of How the Annuity Works
Suppose you invest $10,000 into the Transamerica Advisory Variable Annuity and allocate it across several sub-accounts:
- If the sub-accounts generate a 10% return in the first year, your account value grows to $11,000 (excluding fees).
- However, if the market drops and results in a 5% loss, your account value would decrease accordingly.
By adjusting your sub-account allocations and utilizing features such as dollar-cost averaging, you can mitigate some of the market risks while still aiming for long-term growth.
Rates and Costs
The Rates and Costs associated with the Transamerica Advisory Variable Annuity represent one of the most critical aspects to consider when evaluating this product. Variable annuities, including this one, come with multiple cost components that can impact your overall returns. Being aware of these fees and how they apply is essential to understanding the net benefit of this annuity.
Base Contract Expenses
- Mortality and Expense Risk Fees: Charged daily based on the net asset value of each Subaccount, this fee compensates for certain risks such as guarantees on annuity rates and death benefits, among others. The exact percentage varies but is integral to covering risks assumed under the policy.
- Administrative Charges: These are deducted daily to cover the costs associated with supporting and administering the policy. This includes certain distribution-related expenses and is calculated as a percentage of the daily net asset value of each Subaccount.
- Annual Service Charge: An annual charge of $25 (capped at 2% of the Policy Value) is levied on each policy anniversary and at surrender. However, this charge is waived if the Policy Value or the sum of your premiums, minus all withdrawals, reaches at least $25,000.
Transaction Expenses
- Premium Taxes: These are deducted at the time of premium payment or when annuity payments commence, with rates ranging from 0% to 3.5% depending on the jurisdiction. This is a direct pass-through cost from governmental taxes imposed on the premiums paid.
- Special Service Fees: Charges for additional services such as overnight delivery, duplicate policies, and more may also be deducted as needed. These fees cover the operational costs of providing these extra services beyond the standard policy management.
Underlying Fund Portfolio Fees and Expenses: Each investment option within the annuity has its own set of fees, which include management fees, 12b-1 fees, and other operational expenses. These are deducted directly from the portfolio's assets and vary based on the specific fund chosen for investment. These expenses typically range from 0.11% to 0.49% annually.
Optional Benefits Expenses: If you choose to add optional benefits, such as a return of premium or enhanced death benefit, an additional fee will be assessed. These fees are charged against the daily net asset value of each Subaccount and can vary based on the specific options selected.
The total cost of the Transamerica Advisory Variable Annuity can vary substantially based on how the policy is customized. The following table outlines the minimum and maximum annual costs (as a percentage of policy value) based on policyholder choices.
| Annual Fee | Minimum | Maximum |
|---|---|---|
Base Policy Fee (as a % of policy value) | 0.30% | 2.30% |
Portfolio Company Fees (fund expenses) | 0.11% | 0.49% |
Optional Benefit Expenses (if elected) | 0.20% | 0.20% |
Cost Example
The following breakdown provides an example of annual costs for a $100,000 investment, assuming a 5% annual appreciation and no withdrawals during the year.
| Lowest Annual Cost: $422 | Highest Annual Cost: $1,012 |
|---|---|
Assumes:
| Assumes:
|
Impact on Investment
It's essential to consider how these fees impact the potential growth of your investment. While they provide necessary services and protections, they also reduce the net return on your investment. Evaluating the balance between the costs and the benefits provided by these fees will help you make an informed decision about whether this variable annuity aligns with your financial goals.
Who Is This Annuity Suitable For?
The Transamerica Advisory Variable Annuity is designed for individuals seeking long-term investment growth, tax-deferred savings, and the flexibility to customize their investment strategy. Below are the key characteristics of investors who may find this annuity suitable:
- Long-Term Investors: This annuity is ideal for individuals with a long investment horizon who can withstand market fluctuations and are willing to accept higher short-term risk in exchange for potentially higher returns. Since variable annuities invest in market-based sub-accounts, they require a long-term commitment to smooth out market volatility.
- Those Seeking Market Exposure: Unlike fixed or indexed annuities, this product allows policyholders to allocate funds to sub-accounts that mirror mutual funds and ETFs, offering exposure to equity, fixed income, real estate, and balanced portfolios. It is suitable for investors who want to grow their principal by participating in market gains.
- Investors Seeking Liquidity and Lower Fees: This fee-based annuity has no surrender charges, making it more accessible if you need to withdraw funds. Additionally, there are no mortality and expense (M&E) risk fees, which helps reduce the overall cost compared to commission-based variable annuities.
- Individuals Looking for Customizable Payout Options: The Transamerica Advisory Variable Annuity offers systematic withdrawal options, including payouts for retirement income. Additionally, optional living benefit riders can provide guaranteed lifetime income, making it a flexible choice for those planning for retirement income.
What I Don’t Like About This Annuity
Variable annuities, including the Transamerica Advisory Variable Annuity, often come with a complex array of fees and charges that can significantly erode investment returns over time.
High Fees and Charges: Variable annuities are among the most expensive financial products available. They typically include a variety of fees, such as mortality and expense risk charges, administrative fees, and underlying fund expenses. These costs can accumulate, substantially reducing the net returns on your investment. In contrast, investing directly in exchange-traded funds (ETFs) or mutual funds usually involves lower expense ratios, allowing more of your money to work for you.
Potential for Losses: While variable annuities offer the potential for market-linked gains, they also expose investors to market risks. This means you can experience losses if the underlying investments perform poorly. Given this risk, directly investing in a diversified portfolio of ETFs or mutual funds may be more cost-effective and provide greater flexibility without the additional layers of fees associated with annuities.
Tax Implications: Annuities do offer tax-deferred growth, meaning you won't pay taxes on earnings until you withdraw them. However, when you do take distributions, the earnings are taxed as ordinary income, which can be at a higher rate compared to long-term capital gains taxes applicable to investments held in taxable accounts. Additionally, if you withdraw funds before age 59½, you may incur a 10% early withdrawal penalty, further diminishing your returns.
Comparative Perspective: Although the Transamerica Advisory Variable Annuity may have lower charges compared to other variable annuities, I would still be hesitant to invest in a variable annuity in 2025. The combination of high fees, potential for losses, and less favorable tax treatment makes them less appealing compared to other investment vehicles.
Alternative Consideration: Fixed Indexed Annuities
Fixed Indexed Annuities (FIAs) can offer a more attractive value proposition. They provide the potential for interest credits based on the performance of a market index, while typically offering principal protection against market downturns. However, it's important to note that FIAs come with their own complexities and may involve a learning curve to fully understand their features and benefits.
Company Details
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Transamerica Life Insurance Company
Transamerica Life Insurance Company, a subsidiary of Aegon N.V., is a well-established provider of life insurance and financial services in the United States. Headquartered in Cedar Rapids, Iowa, Transamerica offers a diverse range of products, including term life, whole life, and indexed universal life insurance policies, as well as annuities and mutual funds.
- Life Insurance: Term, whole life, index universal life, and final expense insurance
- Retirement Solutions: 401(k) plans, annuities, and other retirement planning products
- Investments: Mutual funds and other investment options
- Employee Benefits: Group insurance and retirement plans for businesses
However, despite its size and financial strength, Transamerica has faced some challenges in customer satisfaction:
- J.D. Power's 2023 U.S. Individual Life Insurance Study: Scored 757 out of 1,000, ranking below the industry average.
- National Association of Insurance Commissioners (NAIC): Reports a complaint index nearly three times higher than expected for a company of its size over the past three years, indicating a higher volume of customer complaints relative to its market share.
Common customer concerns include difficulties with claims processing, customer service responsiveness, and policy management.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A |
Moody's | A1 |
S&P Global | A+ |
As of December 2023, some of the financial highlights for Transamerica Life Insurance Company include its:
- $427 billion in Revenue Generating Investments
- $47 billion paid in benefits
- $5.1 billion in direct written premiums
- 3.1 million claims processed
- 10.3 million customers
Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with the Transamerica Life Insurance Company.
Conclusion
With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
The Transamerica Advisory Variable Annuity provides a fee-based structure with access to a wide range of market-linked sub-accounts, making it a potential option for those seeking long-term, tax-deferred growth and retirement income. The absence of surrender charges can make it more liquid than traditional commission-based annuities.
However, the annuity still comes with layers of fees, including advisory fees, sub-account expenses, and optional benefit charges, which can significantly erode returns over time. Additionally, the market risk associated with variable annuities means that your principal is not protected, and the investment can lose value.
In many cases, investing directly in low-cost ETFs or mutual funds may be a more attractive option for investors who want market exposure without the added fees associated with variable annuities. This approach offers greater flexibility, lower expenses, and often better long-term returns, especially for those who do not require the lifetime income guarantees that an annuity provides.
Ultimately, while the Transamerica Advisory Variable Annuity has some decent features, it may not be the best choice for every investor, particularly in 2025. Carefully consider your financial goals, risk tolerance, and the potential impact of fees before making a decision, and consult with a financial advisor to determine the most suitable strategy for your needs.
We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Dive deeper into our extensive reviews.