Six Different Living Benefit Rider Guarantees

Guaranteed income is in high demand right now. That is why many people are turning to annuity products with guaranteed income riders to ensure that they don’t run out of money during their retirement. In “6 annuity guaranteed minimum living benefit riders,” LIfeHealthPro’s Kristen Beckman explains six of the most popular living benefit riders available. Before the first GMLB (guaranteed minimum living benefit) products were introduced two decades ago, annuity principal was only protected upon your death. Living benefit riders were introduced based on consumer demand and have remained popular options with variable and fixed indexed annuity products. The IRI found that 3/4 of people buying variable annuities last year elected for either a GMIB or a GLWB rider.

In the 2016 IRI Fact Book, they detailed six of the most commonly elected guaranteed minimum living benefit riders. Guaranteed minimum income benefits (GMIB) pay you a certain amount of income regardless of how the investment performs. Your income payments are made after you annuitize your product at retirement. You can opt to receive payments over your lifetime, a certain period, or over you and your spouse’s lifetime. Most annuities with GMIB options require you to wait 10 years before annuitizing.

Guaranteed Minimum Accumulation Benefits (GMAB) ensure that your contract value stays at least at a minimum amount no matter what happens in the markets. It is usually at least 100% of your investment amount and you typically have to keep your money in for 10 years with this living benefit as well. With a Guaranteed Minimum Withdrawal Benefit (GMWB), you are guaranteed a minimum withdrawal percentage every year until you have gotten back your entire investment. The percentage is typically 4-6%, no matter what the markets are doing. If the markets are up during this time, you will have more than your initial investment in the policy after the withdrawal period is up and will get the cash surrender value if you terminate your contract.

A guaranteed lifetime withdrawal benefit (GLWB) pays you a percentage of your investment for the rest of your life. It is usually somewhere between 3%-5% and is based upon your age. The percentage can also change based on whether your annuity is a single life or joint life. Some newer GLWB features base the payout on the 10-Year Constant Maturity Treasury Rate or some other external source. Some GMLB’s have step-up, or roll-up, features where your guaranteed withdrawals increase if investments perform well. The details are different with each annuity, so it is something to closely research.

The stand-alone living benefit (SALB) was introduced less than a decade ago and works like a GLWB with added flexibility. It is attached to a balanced fund and used mostly as a lifetime income option for employer-sponsored retirement plans. It hasn’t been used as much as anticipated for two reasons. Employers are concerned about their fiduciary responsibility and it’s also hard to move this benefit when you change workplaces and therefore, retirement plans.

Adding a long term care benefit to an annuity is an option that has become increasingly important as Americans’ life expectancy has increased. There are now annuity products where you can withdraw money before the surrender period is up to pay for long term care costs and not have to pay surrender charges. Some of these products also offer additional services, resources, and discounts on the cost of long term care. A new law in 2010 made it so that annuity withdrawals that are used to pay long term care costs are not subject to taxes. Some annuities have long term care riders that double your GLWB payments if you are in a nursing home.

There are many different living benefit riders on the market now that can ensure your annuity guarantees you lifetime income. Each option has is own advantages and disadvantages depending on your personal goals and retirement plan. The six riders summarized here are beneficial to some consumers, but it’s wise to speak with an annuity expert to determine which option is best for your plan.

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