What is a Lifetime Income Benefit?

Uncertain times call for financial planning tools that offer certainty. Having a variable annuity with an lifetime income benefit means the insurance company underwriting the annuity contract is obligated to provide you with a certain level of income for life — regardless of how the annuity performs, regardless of how your other investments perform, and regardless of how the stock market itself performs.

Some other things you should know about lifetime income benefits:

  • Lifetime income benefits start providing regular income (monthly, quarterly, etc.) once the annuity owner hits a specified age, such as 65 or other retirement age of their choosing.
  • Lifetime income benefits are designed to keep providing income, even if all the assets held in annuity accounts are exhausted.
  • A lifetime income benefit is an optional “rider” that carries an annual fee, typically calculated as a percentage of the benefit base or contract value.
  • The lifetime income benefit typically must be elected at the time the annuity is purchased (although the income start date can be elected at the desired retirement date in the future).
  • Both the annuity contract and the lifetime income benefit rider guarantees are backed by the insurance company issuing the annuity.
  • The annuity contract value is paid to the investors’ beneficiaries on death, so it functions as a vehicle for transferring wealth to heirs. Optional enhanced death benefit riders can be selected to pay out a larger amount upon death.
  • Many lifetime income benefits allow investors to base the withdrawal percentage on some minimum compounded growth rate (such as 5%). If your account value appreciates, you typically have the option of locking in the increased account value on a contract anniversary — also referred to as “stepping up” or “resetting” the amount on which the withdrawal percentage is based.
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