Guaranteed Withdrawal Benefits And Lifetime Income Riders

There are plenty of ways to create retirement income, but only a few of them come with guarantees.

Many of the guaranteed withdrawal benefit riders and lifetime income riders offered in some of the recent variable annuity contracts are quite appealing because they do just that; they guarantee lifetime income.

They are some really great products out there, but as with any investment, do your homework first. When looking for a variable annuity that offers a guaranteed withdrawal benefit rider or lifetime income rider, here’s what to look for:

1. Understand the terms of the rider.
   Lifetime income riders may be referred to using several different terms, and a lifetime income rider is not the same as a guaranteed minimum withdrawal benefit. To understand the difference, read Lifetime Income Benefit Description.
   
   
2. Low fees.
   The total fees you pay on an annual basis, including any fee paid to your advisor, should be 3% a year or less. To see a list of all fees you could incur read Variable Annuity Fees and Expenese.
   
   
3. No Annuitization Required
   You want to find a guaranteed minimum withdrawal rider of lifetime income rider that does not require you to annuitize your contract in order to exercise the rider. What does that mean? It means you can withdraw a guaranteed amount each year (5% for example), but if you needed to, you could still access your remaining principal (although doing so may reduce the amount of guaranteed income you could withdraw). It also means upon your death, any remaining funds are still available to pass along to heirs.
   
   
4. An annual step up that locks in your income base.
   This feature means your future income can only go up, not down. How does it work? Each year on your contract anniversary, the annuity company takes a look at your account value. If it is higher than it was the year before, the new amount becomes your income base upon which the guaranteed withdrawal benefit or lifetime income rider is calculated. If the contract value is less than it was the year before, your income base remains as it was, so your income base cannot go down; only up.
   
   
5. An insurance company that has quality ratings.
   A guarantee is only as good as the company that issues it. Historically, insurance company guarantees have been something you can rely on. To be safe be sure to buy from companies that have quality ratings. For an additional layer of safety some people prefer to choose two or three quality insurance companies that offer policies with the features described above, and spread their money across them.

Nationwide has a contract that offers all of the features described above. You must find an advisor that offers the Nationwide contract to purchase it. (I have no affiliation with Nationwide. I just like their product.)

You can also search AnnuityFYI, which keeps an updated list of competitive annuities that offer either a guaranteed minimum withdrawal benefit or lifetime income rider.