Is an indexed annuity with a GLWB the perfect retirement product? Certainly not for everyone, but LifeHealthPro makes a case for the importance of indexed annuities with a guaranteed lifetime withdrawal benefit. In “Pitching the perfect product: Indexed annuities meet GLWBs,” Robert Bloink and William H. Byrnes point out that finding the right mix of products in a retirement plan is just as important as finding the right products in the first place. Each individual retirement plan is different based on your goals, savings, age and a number of other factors. Indexed annuity sales have been steadily increasing lately because of their benefits. But further research shows that it’s not simply the overall indexed annuity that is accounting for the product’s sales increase. The optional benefits that can be added to indexed annuity products are also a key factor contributing to increasing sales.
LIMRA found that 68% of people choose to add a GLWB to their indexed annuity product when the rider is available. This is because guaranteed retirement income is a crucial part of retirement planning right now. But it also might be a reflection of the increasing need for these income guarantees since fewer variable annuities are offering them. At the same time that variable annuity carriers are decreasing their guaranteed lifetime income options, indexed annuities with these guaranteed income features are becoming extremely popular and sales are surging. The demand for guaranteed lifetime income is there; companies just need to figure out how they can offer guaranteed income riders and not put their financial stability at risk.
GLWB riders guarantee that you will receive a percentage of your benefit base paid out for the rest of your life. This percentage is usually somewhere between 4% and 8%. The amount of your benefit base grows throughout the deferral period of your annuity product by a certain guaranteed amount. With an indexed annuity, you also receive a guaranteed growth rate that is tied to a specific market index. Your gains in that index are capped by the insurance company so that they can continue to offer guaranteed gains even in a market decline. By combining these two products, you are able to maximize your income level in one product package. Your premium payment rate is usually lower with this combination product than it would be with a variable annuity with a GLWB product.
The article points out that indexed annuities with GLWBs are a better fit for people close to retirement age. They offer downside protection, the potential for market growth increases and usually a higher rate of return. For younger clients, the cap placed on indexed annuity products may not allow them to take full advantage of the market like they could with variable annuities. A variable annuity with a good growth rate might be a better choice for younger people if they can find one with a guaranteed income feature. Those can be harder to come by these days. Indexed annuities with GLWBS are a good way to achieve guaranteed retirement income with market growth potential for some people close to retirement age.
Written by Rachel Summit