Evaluate Annuity Riders Before Adding Them

You have a lot of options to choose from when it comes to annuities.  Some of the simplest annuities don’t have riders attached and are fairly inexpensive.  The more riders that you add to your annuity product, the more you will pay.  When purchasing an annuity, you have to weigh the benefits with the costs for each particular product.  In “Annuity Riders May Have Benefits, Extra Costs” by Chas. P. Smith of The Ledger, the pros and cons of adding these riders are discussed.  Annuity riders are simply extra benefits that can be added onto your product.  They could be death benefits, lifetime income guarantees, guaranteed growth options, or long term care insurance.  Sometimes the costs associated with these riders are worth their benefits to you, other times they are not.

There are four different living benefit riders summarized in the article.  When you choose a Guaranteed Lifetime Withdrawal Benefit (GLWB), you will receive a fixed income payment for as long as you live.  If you opt for a “Life Installment Refund” or a “Life With Cash Refund” at annuitization time, all of the money you put in will go to your beneficiaries if you die before receiving it.  Variable annuities offer Guaranteed Minimum Withdrawal Benefits (GMWB), which let you take a percentage of your money out annually.  This amount could increase if markets perform well, but will never decrease.  If you need money for a specific time frame, like while waiting to receive social security or pension benefits, you can opt for a Term Annuity Withdrawal Benefit.  You will be guaranteed a fixed income payment for 5, 10 or however many years you choose.  A “Cash Refund” for your heirs can be added to this as well.  Finally, you can add on a Joint and Survivor Benefit so that your spouse will continue receiving income payments as long as they live too.  These riders cost more, so only add them on if you know that you need the benefits.

Most annuities have death benefits attached to them.  In the case that you die before you have annuitized, your beneficiaries will receive a lump sum payment.  Any money paid out to you before death will be deducted from the death benefit.  Death benefits are similar to life insurance policies, but if you are only looking for a death benefit, life insurance is the better option.  Choose an annuity for the benefits it will offer to you, not to your heirs.  If they will receive death benefits as an added payment upon your death, then that’s great as well.  As the cost of long term care skyrockets, newer annuity products offer riders that will cover long term care or in-home care should you need it.  Since these annuities are long term investments, make sure that you are purchasing them from a reputable insurance company with strong financial strength ratings.

This article states that a diversification of CDs, stocks, bonds and mutual funds performs better than annuities for financing your retirement.  While you may end up with a better return on your money, you have no guarantees that you will not run out of money in retirement.  Annuities are the only products that offer you guaranteed lifetime income when you are ready for the decumulation phase of your life.  Adding riders onto annuities can make them complicated, so you must make sure that you fully understand the product you are purchasing.  Diversifying with many products, including annuities, is the best way to guarantee a successful financial retirement.  This might include adding on additional riders to give you the benefits for which you are looking.

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