Enjoy a guaranteed income when it's needed most, during retirement...
The number one concern among Baby Boomers as they begin to reach retirement age is outliving their money. Will I have enough income to last through my retirement? The retirement phase of life can now last 20-30 years. People are living longer and being prepared is more important than ever. For this reason, income for life no matter how long you live has become a critical part of retirement planning.
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You can now take control of your own retirement income. With so many uncertainties in retirement, your retirement income can actually become a very stable point. Imagine this. Your Income Base can be credited with a guaranteed interest as high as 8% so when you are ready to receive income it will provide you with a consistent “retirement paycheck” that you cannot outlive. The security and peace of mind it provides is what attracts many to purchasing an annuity in the first place. And many annuity products offer a special rider to their standard contract that allows you to receive this attractive lifetime benefit.
The GLWB rider is an optional rider offered on many fixed indexed annuities. To understand how a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider can provide a guaranteed income for life, there are two amounts you’ll need to be familiar with, they are the Account Value and the Income Base.
Account Value - Typically this amount is used when calculating a surrender value, an annuitization or death benefit. The account value equals the premium(s) paid in, plus any bonus and interest credited, minus any withdrawals.
Income Base - This is the amount used to calculate your income payments under the GLWB rider. The Income Base is not available to take as a lump sum and should not be confused with the Account Value. The Income base is equal to the premium, plus income bonus (if any) in addition to the credited annual rollup rate. Some companies also refer to this as the Benefit Base.
In defining the Income Base, the GLWB rider contract also uses some additional terms that you’ll want to become familiar with:
Rollup Rate – This is the percentage that your Income Base will increase during the Rollup Period. This rate varies by company and product and is commonly between 4-8%. Typically the Rollup Rate is declared at the time the annuity contract is issued with the GLWB rider and remains fixed throughout the Rollup Period.
Rollup Period – This is the number of years the Rollup Rate will be credited to your Income Base. To take advantage of the GLWB rider the income payments would need to be taken in coordination with the Rollup Period. It is important to select a GLWB rider with a Rollup Period that fits the timing for your individual retirement plans.
Withdrawal Percentage – The percentage of your Income Base you receive when you begin your withdrawals. This percentage typically gets higher the longer you delay taking the lifetime withdrawals. In most cases, taking out excess withdrawals in any given year will reduce the guaranteed income you may withdraw under the rider.
If you’re in the phase where you’re receiving income from the GLWB contract, and you die, your beneficiaries will receive the remaining value of the GLWB contract, under the terms of that contract.
If you have no plans to withdraw money from your annuity contract, the GLWB rider may not be suitable for you since there is an annual cost for the rider that typically ranges between 0.5%-1%.