Have you been searching for Vanguard annuities only to find they’re no longer available? You’re not alone Many investors were surprised when one of the most trusted investment companies decided to exit the annuity business Let me break down exactly what happened to Vanguard annuities and what it means if you’re a current annuity holder or someone considering annuities for retirement planning,
The Timeline of Vanguard’s Annuity Exit
Vanguard’s departure from the annuity business didn’t happen overnight. Here’s the key timeline of events:
- June 19, 2019: Vanguard announced plans to transition the client service and account administration for the Vanguard Variable Annuity to Transamerica.
- December 7, 2020: The transition was completed, with Transamerica taking over all annuity servicing, communications, and account access.
- Vanguard also discontinued the Vanguard Annuity Access® platform, which had allowed individuals to compare income annuities from leading insurance companies.
What Annuity Products Did Vanguard Offer?
Before exiting the market, Vanguard offered several annuity products:
- Vanguard Variable Annuity – Now managed by Transamerica
- Vanguard Lifetime Income Program – SPIA – A Single Premium Immediate Annuity offering both fixed and variable immediate annuities
- Fixed income payments were financed by the insurer’s general account
- Variable income payments were funded through the Separate Account
Who Manages Former Vanguard Annuities Now?
If you currently own a Vanguard annuity it’s important to know who’s managing it
-
Vanguard Variable Annuity: Transamerica now handles all servicing, communications, and account access. However, Vanguard still manages the Vanguard Variable Insurance Funds, which are the underlying investments in these annuities.
-
Vanguard Lifetime Income Program – SPIA: American General Life Insurance Company of Delaware (or, in New York State only, The United States Life Insurance Company in the City of New York) has managed these annuities since November 1, 2010.
Why Did Vanguard Exit the Annuity Business?
Several factors contributed to Vanguard’s decision to stop selling annuities:
1. Focus on Core Business
Vanguard decided to concentrate on what they do best – providing low-cost index funds and ETFs. As Karin Risi, Managing Director of Vanguard’s Retail Investor Group, stated: “Annuity administration is not central to our long-term product and service plans. We’re deepening our focus on our core priorities: delivering industry-leading funds and ETFs, enhancing the client experience, and expanding our advice capabilities.”
2. Changes in the Regulatory Environment
The annuity market has become increasingly complex and heavily regulated, leading to higher compliance costs.
3. Shifting Investor Preferences
Investors have been gravitating toward more flexible and transparent investment options. Traditional annuities can be less flexible and their fee structures often less transparent compared to other investment products.
What If You Own a Vanguard Annuity?
If you’re one of the many investors who purchased a Vanguard annuity before they exited the business, here’s what you need to know:
For Variable Annuity Owners:
- Your contract continues to be guaranteed by Transamerica Premier Life Insurance Company (or Transamerica Financial Life Insurance Company in New York)
- Transamerica now handles all servicing aspects
- Vanguard still manages the underlying investment funds
For Lifetime Income Program – SPIA Owners:
- The terms and conditions of your contract remain in effect
- American General Life Insurance Company (or The United States Life Insurance Company in NY) continues to service these annuities
- No immediate action is required
Should You Keep Your Former Vanguard Annuity?
This is a personal decision that depends on your financial situation, but here are some considerations:
-
Review your contract – Make sure you understand the terms, payout options, and fees.
-
Compare to other investment options – There might be alternatives like low-cost index funds or ETFs that better suit your current needs.
-
Consider getting professional advice – If you’re uncertain about what to do with your annuity, consulting a financial advisor could be beneficial.
What Could Change for Current Vanguard Annuity Holders?
While your contract terms remain intact, some aspects may change over time:
- Investment options: The subaccounts available for variable annuities might change.
- Fees: The fees associated with your annuity could change in the future.
Possible Alternatives to Vanguard Annuities
If you were considering a Vanguard annuity and now need alternatives, here are some options:
-
Other low-cost annuity providers – Companies like Fidelity, Schwab, and T. Rowe Price offer annuity products worth considering.
-
Direct investment in index funds and ETFs – These can provide growth potential without the insurance component of annuities.
-
Bond ladders – Creating a series of bonds with staggered maturity dates can provide regular income similar to an annuity.
-
Dividend-focused investment strategy – Investing in dividend-paying stocks can provide ongoing income during retirement.
FAQs About Vanguard Annuities
Does Vanguard still offer any annuities?
No, as of June 19, 2019, Vanguard has completely exited the annuity business. They no longer offer variable annuities or income annuities to new customers.
What happened to the Vanguard Annuity Access platform?
Vanguard discontinued the Vanguard Annuity Access platform, though they continue to have a relationship with Hueler Investment Services, Inc. to make Income Solutions® available for defined contribution plan participants seeking an annuity.
Will my Vanguard annuity payments change?
No, the terms and conditions of existing annuity contracts remain in effect. Your payment structure should continue as outlined in your original contract.
Who should I contact if I have questions about my former Vanguard annuity?
For Variable Annuities: Contact Transamerica directly.
For Lifetime Income Program – SPIA: Contact American General Life Insurance Company (or The United States Life Insurance Company in NY).
Understanding Annuity Options That Were Available Through Vanguard
The Vanguard Lifetime Income Program – SPIA offered several annuitization payout options:
- Fixed immediate annuity options had no expense ratios, but costs were included in the income quote from the insurer
- Variable immediate options had specific cost structures
Some states also imposed premium taxes on immediate annuities:
| State | Qualifying | Non-Qualifying |
|---|---|---|
| Maine | 0.00% | 2.00% |
| South Dakota | 0.00% | 1.25% |
| Wyoming | 0.00% | 1.00% |
| California | 0.50% | 2.35% |
| Nevada | 0.00% | 3.50% |
| West Virginia | 1.00% | 1.00% |
| Texas | 0.40% | 0.40% |
Final Thoughts
Vanguard’s exit from the annuity business represents a significant shift in their business strategy toward focusing on their core strengths. While this change might be disappointing for those who valued Vanguard’s approach to annuities, existing contract holders shouldn’t experience disruption to their annuity benefits.
If you’re exploring annuities as part of your retirement planning, there are still many providers in the marketplace. Just be sure to thoroughly research fees, terms, and the financial strength of the issuing insurance company before making any decisions.
And remember, annuities are just one tool in the retirement planning toolbox. A diverse approach to retirement income that may include Social Security, employer pensions, personal savings, and investments often provides the most secure foundation for retirement.
Have you been affected by Vanguard’s exit from the annuity business? We’d love to hear your experience in the comments below!
What is an annuity?
If you own a home, you probably bought home insurance. Well, an annuity is a form of insurance too. It’s a contract with an insurance company. But while a homeowner’s policy might protect you in case of fire or water damage, an annuity offers a different type of benefit—guaranteed monthly income.*
If you worry about outliving your savings, annuities are an option you may want to consider. Annuities can be purchased that offer payments over your life (and even a loved one’s life). The longer you live, the greater the benefit your annuity may hold.
An annuity can help you manage the risk that you’ll outlive your savings, often referred to as longevity risk. Likewise, an important consideration is how long you expect to live. Trying to estimate this is understandably difficult. But your current health and your family medical history can help inform your decision. In addition to lifetime annuities, some annuities offer payments for fixed periods of time—say over 10 or 20 years.
There are lots of options. Here are some common ones you might see:
- Immediate fixed income annuity. You buy the annuity now, and regular payouts begin shortly afterwards. They offer a guaranteed amount each month, so your monthly payout won’t change. Some insurers may offer guaranteed minimum payouts or a refund if you die before the payouts equal what you paid for the annuity. Keep in mind that, with options like this, your payouts will be reduced.
- Deferred fixed income annuity. You buy it now, but payouts don’t start until later—maybe even years or decades in the future. They also offer a guaranteed amount each month. Deferred annuities offer larger payouts than immediate annuities. If you’re buying an annuity with money in a retirement plan or IRA, you may see it called a qualified longevity annuity contract (QLAC).
- Variable annuity. Your payouts can vary. They’re determined by the performance of underlying investments. Payments would be higher when your investments do well, and lower when they perform poorly.
- Index annuity. Your payouts can vary. They’re determined by the performance of a market index.
Note: Annuities are not risk free.* They’re subject to the risk that the insurer will default. In addition, immediate variable annuities contain underlying investment portfolios that are subject to investment risk, including possible loss of principal. Deferred variable annuities are long-term vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to investment risk, including possible loss of principal.
The ABCs of annuities
You’ve spent a career building your nest egg for retirement. But at some point, you’ll stop saving for the future and start living off that money. Since this is an important stage for retirees, nows a good time to see if purchasing an annuity as part of your retirement income strategy makes sense for you.
Annuities can be a source of guaranteed income for the rest of your life, or for a set number of years. But you’ll want to know your options, the pros and cons of buying an annuity, and some other important considerations first.