I'm considering this annuity with Transamerica

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I'm considering this annuity with Transamerica

Postby tonic » Sun Mar 24, 2013 2:40 pm

Hi folks. I just found this site today. I am seriously considering the Transamerica 1.6 Retirement Income annuity.
https://www.transamericaannuities.com/V ... ome-Choice

I'm almost afraid to ask for opinions as everyone is so negative on this topic, but I'm someone who literally can not sleep at night worrying about the market. I am looking at moving my IRA into this. I'm 58, single, will get 2k a month SS at 66. I have no debt and my house is paid off. I like the idea of knowing what I will draw monthly going into it and knowing that if the market performs well my withdrawal base and thus my monthly amount will increase, but it will never go down.

I've also looked at the VA with Fidelity (with Metlife) and a Deferred Fixed Annuity. For someone who just wants to know they have a guaranteed income for life, is this a good option? I would love to be able to not spend every minute of every day worrying about the darn market.
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Re: I'm considering this annuity with Transamerica

Postby mickeyd » Sun Mar 24, 2013 3:26 pm

Welcome here. You would probably get more responses to your inquiry if you followed this procedure that Laura suggests.

viewtopic.php?t=6212
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Re: I'm considering this annuity with Transamerica

Postby HomerJ » Sun Mar 24, 2013 3:32 pm

tonic wrote:Hi folks. I just found this site today. I am seriously considering the Transamerica 1.6 Retirement Income annuity.
https://www.transamericaannuities.com/V ... ome-Choice

I'm almost afraid to ask for opinions as everyone is so negative on this topic, but I'm someone who literally can not sleep at night worrying about the market. I am looking at moving my IRA into this. I'm 58, single, will get 2k a month SS at 66. I have no debt and my house is paid off. I like the idea of knowing what I will draw monthly going into it and knowing that if the market performs well my withdrawal base and thus my monthly amount will increase, but it will never go down.

I've also looked at the VA with Fidelity (with Metlife) and a Deferred Fixed Annuity. For someone who just wants to know they have a guaranteed income for life, is this a good option? I would love to be able to not spend every minute of every day worrying about the darn market.


How much are you paying and how much are you getting?
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Re: I'm considering this annuity with Transamerica

Postby Taylor Larimore » Sun Mar 24, 2013 3:37 pm

Tonic:

Welcome to the Bogleheads Forum!

Question: Are you in any way associated with the insurance business?

Thank you and best wishes.
Taylor
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Re: I'm considering this annuity with Transamerica

Postby retiredjg » Sun Mar 24, 2013 3:38 pm

I have no opinion on the specific one you are looking at (just don't know enough).

People here are generally supportive of SPIA type annuities. People are not very supportive of putting your entire nest egg into one though. Also, there are reasons to wait till later when you are older (more payout) and when interest rates might be higher (again, more payout). And people have reported buying one annuity and buying another 10 or 15 years later.


I agree more info is needed. I doubt we really need your full investment breakdown though. If you can give info about how much money is involved (both in the annuity and outside) when you think you will retire, what you think your expenses will be, etc.

Understand that the word "annuity" means many things. You need to be specific about what you are looking for so you can compare apples to apples. I don't understand why you would be looking at a deferred fixed annuity. Don't you want an income annuity?
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Re: I'm considering this annuity with Transamerica

Postby HomerJ » Sun Mar 24, 2013 3:47 pm

Okay, I looked at that website, and they will totally [take advantage of --admin LadyGeek] you.

They guarentee 5% growth on your "withdrawal base". This is NOT the same as 5% growth on your money...

Because, when you start getting payments, they will pay you a much lower annuity payment than you get can elsewhere... Read this to see how...

http://www.advisorone.com/2009/08/01/an ... ate-really

Let's take an example. Say you are 55 years old and invest $100,000 in a variable annuity policy offering a minimum 7 percent guaranteed growth rate over 10 years. This growth guarantee implies that, at the very least, you will have an withdrawal base of $196,715 by the age of 65


Your contract further stipulates that the income base -- whatever it is at the withdrawal commencement date, and I have chosen age 65 -- will be multiplied by a guaranteed withdrawal rate, say 5 percent, to determine your lifetime income benefit. I will refer to this pair of numbers, 7 percent and 5 percent, as the guaranteed growth rate factor and the guaranteed withdrawal factor. Every GLiB VA policy includes both factors. And, from the consumer's point of view, larger numbers are better.

So, to recap our example, if you want to retire at 65 and start drawing down from your GLiB VA (purchased at 55 for $100,000 with a 7 percent growth rate factor and a 5 percent withdrawal factor), the absolutely worst case scenario you will face is a guaranteed yearly income of 5 percent of the $196,715 base, or approximately $9,836 for life. This number sounds nice, but is precisely where my problems start.

Did you ever wonder what it costs to purchase a basic pension at age 65 which pays the same $9,836 per year for life? This is not a hypothetical question. There is an active market for single premium income annuities (SPIA), which have been sold by major insurance companies for hundreds of years. In March 2009 the cost of a $9,836 per year income annuity was approximately $122,940.


So, see... the 5% "guarentee" on your withdrawal base is complete and utter [nonsense --admin LadyGeek].

In the example above, they threw out a 7% guarenteed number, but the guy actually ends up getting less than a 2% return.

In your policy, they talk about paying someone who is 80+ 6% a year... which is ridiculous... One can get SPIA (Single premium immediate annuities) at 80+ that pay 11%+.

I 100% understand you wanting a safe income stream in retirement... I want one myself... SPIA is the way to go... It's the only annuity we like on these boards... not the complicated variable annuities from insurance companies... An SPIA is very straight forward... You give the insurance company $100,000... they give you so much money every year for life (depending on age... Older you are the more you get). Very simple.
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Re: I'm considering this annuity with Transamerica

Postby momar » Sun Mar 24, 2013 3:53 pm

If you don't want to worry about the market, don't buy an annuity that depends on the market.
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Re: I'm considering this annuity with Transamerica

Postby jsl11 » Sun Mar 24, 2013 4:06 pm

I had the misfortune to participate in a 401k plan administered by Transamerica. My experience indicates that their plans are very good for Transamerica; for their participants, not so much.
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Re: I'm considering this annuity with Transamerica

Postby ThePrune » Sun Mar 24, 2013 4:15 pm

tonic wrote:Hi folks. I just found this site today. I am seriously considering the Transamerica 1.6 Retirement Income annuity.
https://www.transamericaannuities.com/V ... ome-Choice

Tonic, such deferred variable annuities have so many "moving parts" that a complete quantitative analysis is very time consuming. I'll focus on just one part: the real value of the Retirement Income Choice 1.6 rider. This is the feature of this Variable Annuity (VA) that suposedly lets you sleep well at night.

In order for you to actually benefit from this rider (which will cost you somewhere between 0.70% and 1.55% of additonal fees every year, depending on the funds you select for your VA investments), you must also agree to withdraw from your account no faster than the annual withdrawal percentage stated in the brochure. Assuming you retire at age 66 (you mentioned this as the age you'd start your Social Security), the brochure states the annual withdrawal percentage must be 5% (actually this is the percentage for ages 65-79).

However the rub here is that the current withdrawal rates for Immediate Fixed Annuities (SPIA's) are much higher than 5%! The Vangaurd Access Service gave equivalent "withdrawals" for Single Men of 6.6% (age 65) and 7.4% (age 70) back in January, and these are in all likelihood still valid.

So here's what's really happening. Transamerica charges you a significant extra annual fee for the guaranteed growth rider, but then turns around and only allows you a sub-par withdrawal rate. When it comes time to derive income from your VA account, you'd love to take your accumulated balance out onto the open market and purchase a competitive withdrawal percentage (6.6% is much better than 5% annually), but if you do you'll lose the guaranteed accumulation balance and only be able to withdraw the lower, plain account balance. And even worse, over the next 8 years (until you turn age 66), the payout percentages for open market Immediate Fixed Annuities (SPIA's) will only get larger as the general interest rates in the U.S. rise again. But your poor Tranamercia VA will be stuck at a 5% withdrawal.

I suggest you carefully read Prof. Wade Pfau's article GLWBs: Retiree Protection or Money Illusion? to develop a deeper understanding of some of the drawbacks of this kind of variable annuity.
Investment skill is often just luck in sheep's clothing.
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Re: I'm considering this annuity with Transamerica

Postby Dale_G » Sun Mar 24, 2013 4:35 pm

tonic, I could not identify the specific prospectus for the policy you are interested in, so I chose one at random.

The Transamerica "Landmark" prospectus runs 644 pages. 378 pages describe the investments available, so I'll ignore those pages. But 266 pages to describe the contract itself with all of the choices, fees, ifs, ands, and buts.

If you are considering this policy you must read and understand everything in these 266 pages. Fortunately the prospectus is written in layman's English, but there are a lot of moving parts. You cannot rely on the sales guy to tell you how it works, he has a commission incentive to make everything look rosy.

Fixed annuities or deferred fixed annuities may make a lot of sense for you. My guess is the prospectuses will be a good deal shorter - and more understandable.

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Re: I'm considering this annuity with Transamerica

Postby mlebuf » Sun Mar 24, 2013 4:50 pm

DON'T DO IT!

In the '90's and before I discovered Boglehead investing, my former financial guru Mandrake Walletectomy sold me a TransAmerica index variable annuity. I was locked-in for 6 years and told that I would get the return of the market or something like 3 percent per year. Bottom line: My total return for the entire 6 year period was only 5.9 percent - an average return of under 1 percent per year that was less than the rate of inflation. I would have made a greater after-tax return in a bank CD or a Vanguard short-term bond fund. I rolled it over to a Vanguard variable annuity where it has done far better.

Moral #1: If it sounds too good to be true, it probably is. There is no way that a big insurance company can make a profit and:
• Deliver handsome risk-free returns to you,
• Extract a nice portion of your investment to pay a handsome commission to the salesperson,
• Pay the overhead to run a massive bureaucracy.

Moral #2: If you think education is expensive, try ignorance.
Last edited by mlebuf on Sun Mar 24, 2013 5:30 pm, edited 3 times in total.
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Re: I'm considering this annuity with Transamerica

Postby Dale_G » Sun Mar 24, 2013 5:08 pm

tonic, you should also be aware of the fact that most of those giving you advice are indirect stockholders in Aegon, the parent company of Transamerica. By discouraging you from buying this contract we may be giving up a few pennies in our own investment returns in order to save you thousands - or tens of thousands.

We are an altruistic bunch!

Dale
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Re: I'm considering this annuity with Transamerica

Postby donall » Sun Mar 24, 2013 5:23 pm

jsl11 wrote:I had the misfortune to participate in a 401k plan administered by Transamerica. My experience indicates that their plans are very good for Transamerica; for their participants, not so much.
Jeff


I echo Jeff's response. Transamerica contracts are complex and you may not be aware of all the details. I worked with a relative who had a Transamerica fixed annuity (not immediate). Although the annuity was fixed (before annuitization), it wasn't really fixed, as the rate was decreased when rates went south, see page 10065. Then don't forget the high costs associated with Transamerica annuities. All was not lost though, because as bad as this annuity was it helped preserve funds during 2007-2009, when the relative for sure would have sold all their stock.
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Re: I'm considering this annuity with Transamerica

Postby mickeyd » Sun Mar 24, 2013 5:55 pm

Mandrake Walletectomy
:D
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Re: I'm considering this annuity with Transamerica

Postby letsgobobby » Sun Mar 24, 2013 6:25 pm

Taylor Larimore wrote:Tonic:

Welcome to the Bogleheads Forum!

Question: Are you in any way associated with the insurance business?

Thank you and best wishes.
Taylor

My question precisely.
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Re: I'm considering this annuity with Transamerica

Postby jdilla1107 » Sun Mar 24, 2013 6:30 pm

tonic wrote:Hi folks. I just found this site today. I am seriously considering the Transamerica 1.6 Retirement Income annuity.
https://www.transamericaannuities.com/V ... ome-Choice

I'm almost afraid to ask for opinions as everyone is so negative on this topic, but I'm someone who literally can not sleep at night worrying about the market. I am looking at moving my IRA into this. I'm 58, single, will get 2k a month SS at 66. I have no debt and my house is paid off. I like the idea of knowing what I will draw monthly going into it and knowing that if the market performs well my withdrawal base and thus my monthly amount will increase, but it will never go down.

I've also looked at the VA with Fidelity (with Metlife) and a Deferred Fixed Annuity. For someone who just wants to know they have a guaranteed income for life, is this a good option? I would love to be able to not spend every minute of every day worrying about the darn market.


I would bet a cup of coffee that this is astroturfing. I should offer an overpriced seminar at a hotel near you titled, "Successful Astroturfing." This one is really weak.
Last edited by jdilla1107 on Sun Mar 24, 2013 6:40 pm, edited 3 times in total.
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Re: I'm considering this annuity with Transamerica

Postby pkcrafter » Sun Mar 24, 2013 6:32 pm

No, it's not a good idea. There are better, less costly ways to produce steady income.

Paul
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Re: I'm considering this annuity with Transamerica

Postby Raymond » Sun Mar 24, 2013 6:51 pm

How odd that the OP hasn't responded :twisted:
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Re: I'm considering this annuity with Transamerica

Postby tonic » Sun Mar 24, 2013 9:09 pm

Thanks for all the quick replys!

I have 300k in the IRA, and approx another 100k towards retirement. That's all. If I retire at 65/66 I should have another 100k if I'm very frugal.

I am not associated with any insurance companies. I got a quote from Fidelity on a Deferred Income Annuity (MassMutual), if I put in 100k now, I'll get $681 monthly if I withdraw beginning 1/1/2020 (the Jan after I turn 65.) I've spent the day reading some of the links on here and other sites. I'm very grateful I found this site. The FA was suggesting I put the 300k into the VA with Transamerica. I have no background in annuities so I'm on a mission to educate myself.

I think the DIA with Fidelity is similar to a SPIA? Just not immediate.

Thank you all again. I don't want to rush into anything and I'm wondering is a Fee based FA might be a better help to me. I feel very untrusting right now.

Editing to add: If I put 300k into the VA annuity with Trans my withdrawal base would be 426k in 7 years and my monthly amount would be $1,781, minimum. Of course if the market goes up....my w/d would go up, or so they say.
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Re: I'm considering this annuity with Transamerica

Postby Mel Lindauer » Sun Mar 24, 2013 10:24 pm

tonic wrote:Thanks for all the quick replys!

I have 300k in the IRA, and approx another 100k towards retirement. That's all. If I retire at 65/66 I should have another 100k if I'm very frugal.

I am not associated with any insurance companies. I got a quote from Fidelity on a Deferred Income Annuity (MassMutual), if I put in 100k now, I'll get $681 monthly if I withdraw beginning 1/1/2020 (the Jan after I turn 65.) I've spent the day reading some of the links on here and other sites. I'm very grateful I found this site. The FA was suggesting I put the 300k into the VA with Transamerica. I have no background in annuities so I'm on a mission to educate myself.

I think the DIA with Fidelity is similar to a SPIA? Just not immediate.

Thank you all again. I don't want to rush into anything and I'm wondering is a Fee based FA might be a better help to me. I feel very untrusting right now.

Editing to add: If I put 300k into the VA annuity with Trans my withdrawal base would be 426k in 7 years and my monthly amount would be $1,781, minimum. Of course if the market goes up....my w/d would go up, or so they say.


Let's compare apples with apples.
1. The Fidelity DIA would pay you $681 per month x 3 for a $300,000 payment, or $24,516 per year.
2. The Transamerica would supposedly guarantee you $21,372 per year for a $300K payment. Anything above that is speculation, and any crediting system is probably gobblygook buried within those hundreds of pages of the prospectus. Therefore, you can only count on what's guarantted.

So, the Fidelity DIA would pay $3,144 more per year vs what the Transamerica guarantee is. Over your retirement lifetime, here's how that works out:
1. If you live for 25 years in retirement, you'd get $78,600 more with the DIA than what you're guaranteed with Transamerica.
2. If you live for 30 years in retirement, you'd get $94,320 more with the DIA than what you're guarnateed with Transamerica.
3. And if you live longer in retirement, you'd get even more with the DIA.

Do you really want to risk getting $94,320 less over your 30-year retirement with Transameria? I know my answer would be "No way!".
Best Regards - Mel | | Semper Fi
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Re: I'm considering this annuity with Transamerica

Postby retiredjg » Mon Mar 25, 2013 10:52 am

tonic, I think it is pretty clear now that the Transamerica annuity is not a good choice. And now that we know you are not retiring soon, I don't think any kind of annuity is your best choice now (although I agree with Mel that the Fidelity Deferred Income Annuity is far superior to the Transamerica annuity).

I think the better choice is to help you get comfortable with your investments so you don't have to "spend every minute of every day worrying about the darn market". When you retire, an income annuity might be an excellent choice for part of your money. But consider that things may change a lot between now and then. You might get a better product in 8 years than buying one now.

Even if you do decide to buy a deferred income annuity now, I would do more shopping around and I would not put all your money into any one product. Keep some out for plain old investing.

People here can help you examine your current investments and make improvements if needed. We might be able to make you more comfortable with what you have. It is not necessary to worry about the market all day every day and a lot of that worry may disappear if you understand things better. You have nothing to lose by giving it a try.

I'd suggest starting here Wiki article link: Getting Started and when you are ready, post your information in the format shown in the link at the bottom of this message. People will be available to help at that time.
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Re: I'm considering this annuity with Transamerica

Postby BigFoot48 » Mon Mar 25, 2013 2:00 pm

retiredjg wrote:I'd suggest starting here Wiki article link: Getting Started and when you are ready, post your information in the format shown in the link at the bottom of this message. People will be available to help at that time.

I was thinking the same thing. The best move by the OP to "not spend every minute of every day worrying about the darn market" is to get an education into what the markets are, how they perform, and what the best approach there is to investing in them. I think the Getting Started section of the Wiki is an excellent way to start this education process.

Tonic, once you get an understanding of the Bogleheads approach to investing, and exactly why variable annuities are not recommended for the average investor, you will be better able to make your investing decisions and stop worrying about the market (for the most part).
Retired | Two-time Top-10 Diehard S&P500 Picker; Nine-Time Loser
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Re: I'm considering this annuity with Transamerica

Postby tonic » Tue Mar 26, 2013 12:23 am

Thank you all for your helpful replies. I have much reading and research to do! I will not be proceeding with that VA. I feel like I dodged a bullet. Thanks for all the links and pointers to get me started.
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