“A fixed indexed annuity (FIA) has amazing versatility and tax advantages. When you include a lifetime income benefit using an optional rider,

you create your own pension.” Michael Travers


By Michael J. Travers

If you are considering purchasing an annuity, you may also be considering adding what’s known as an “income rider” or Guaranteed Lifetime Withdrawal Benefit (GLWB.) Purchasing a GLWB provides an annuity owner with retirement income for life, even after the annuity has run out of funds.

Having an income rider attached to your annuity can help you manage and budget your money once you retire. It can also give you confidence knowing that you have at least one guaranteed income stream to supplement Social Security and any other accounts you may have. However, unlike a pension, when you own a fixed indexed annuity with an income rider, you can choose to stop and restart your payments as you wish. Specific contracts may also allow you to withdraw some additional cash from your deferred annuity.

While the pros of adding a GLWB to a deferred annuity seem apparent, many people find the idea a little puzzling. Such confusion could be because people don’t understand that having this optional rider can help prevent them from outliving their income. Since the principal is protected in a fixed-indexed annuity, a GLWB allows you to determine how long your underlying asset base will last once you start getting distributions. With other kinds of annuities, particularly variable annuities, a drop in the market could reduce the value of your annuity assets. This reduction would make it difficult to calculate how long your account value will last. When you own a fixed indexed annuity, the income protection is less about the combined impact of longevity and market risk and more about managing longevity risk alone.

So, what are the pros of choosing to add an income rider to your annuity?

  • You create fixed and predictable income: If you’d feel more secure knowing you have a guaranteed income stream to supplement other accounts, then adding an income rider is one way to achieve that.
  • You can achieve more peace of mind knowing your spouse is protected. Income riders can be designed to cover either you alone or you and your spouse.
  • You can turn the income off or on as you choose. This feature gives you greater flexibility.
  • You can know your future income. Unlike other vehicles, a FIA with an income rider allows you to know how much you will be receiving now and years from now, making budgeting and planning much more manageable.

Are there any downsides to adding an income rider to a FIA?

  • Most of your withdrawals are fixed. Your guaranteed withdrawal amount on a FIA with an income rider may not increase over time to help offset inflation.
  • Payouts can take a long time. It may be 20 years or longer for you to tap into the annuity company’s money. Distribution times could be even longer if you choose a joint payout.
  • You have to choose ahead of time. Regardless of whether you ever use the income feature, you have to decide ahead of time. You cannot add the income rider later.

Travers’ Takeaway: A fixed indexed annuity with an income rider can solve many of the issues plaguing modern retirees. However, this financial product isn’t for everyone. Unless you are someone looking for protection of your principal investment, income for life, a way to avoid outliving your savings or to create a legacy for your spouse, you may want to consider other alternatives. However, if you wish to have any of these things in retirement, you should discover more by consulting a retirement and income specialist. I’m always glad to help answer your questions or find a local annuity expert to assist you.

Call me directly at 978-353-0456.

#michaeljtravers, #miketravers, #miketraversretirement, #michaeltraversretirement, #michaeljtravers, #retirementannuities, #retirementplanning