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GLWB Riders and Retirement Income

A new study has found that more owners of variable annuities with a guaranteed lifetime withdrawal benefit (GLWB) rider are using those benefits in retirement, according to a recent InsuranceNewsNet article. Nearly 25%, in fact, have elected to withdraw income at the end of the first half of 2017, which is an increase of 2 percentage points over the last 18 months, says the Ruark Consulting report. The study focused on the behavior around GLWB riders, a variable annuity option that barely existed 13 years ago.

“People are using GLWBs more and more for the purposes they were inteded, which is to provide an income stream in retirement,” said actuary Timothy Paris, CEO of Ruark Consulting.

Analysts suggest that the increase could be due, in part, to a higher level of comfortability with how these products work, both by consumers and advisers. Another could be that boomers are facing their longevity risk. Those who decide not to make use of their GLWBs are said to be “leaving money on the table,” as they forsake the income. On the flip side of that coin, those who withdraw more than the rider allows erode their future benefits.

Ruark Consulting tracks policyholder behavior based on data from 25 variable annuity companies with $905 billion in variable annuity account values.

Similarly to Social Security, insurers often offer incentives to defer withdrawals under GLWBs, sometimes for 10 years or more after purchase. The amount of monthly income received depends on when the owners start taking withdrawals. Approximately 12% of those who own a VA with a GLWB start collecting their income in the first year they own their rider. That number drops even further after that, until the 10 year mark when it begins to rise again, reflecting the incentive to defer.

“We’re at a point now when the first generation of GLWBs has recently hit the 10-year mark,” Paris sid. “Five years ago, we didn’t have the data and now we have GLWB volume that is 10 years old and we see an increase in ‘efficient’ withdrawals after 10 years.”

A dip in the rate at which policyholders surrendered their variable annuity contracts was observed in 2016, but the numbers have rebounded again in the first half of 2017. Experts agree, the sudden drop was likely caused by the uncertainty around the Department of Labor’s (DOL) fiduciary rule, which could make the sale of variable annuities more difficult for advisors. Economic uncertainty surrounding the 2016 presidential election could have also had a part in the dip.

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