Can this annuity rider help your client weather today’s tough market?
What do you want to know
- In this volatile market, many customers may be interested in learning more about Guaranteed Lifetime Withdrawal Benefits.
- IBCs guarantee that the client will be able to withdraw a percentage of the value of their benefit base without fees or penalties.
- Regular use of the GLWB withdrawal option in the accumulation phase of the annuity will reduce the overall principal balance of the annuity.
Volatile market conditions remind clients of the power of annuity products and the value of lifetime income guarantees in the face of uncertainty. With interest rates rising, now may be the time for many pre-retirees and recent retirees to consider whether an annuity is right for them.
If interest rates rise as expected over the next few months, it is important that advisors are prepared to discuss the various options that clients may find attractive, in addition to the tax advantages of the annuity itself.
With respect to purchases of variable annuities, cClients may be particularly interested in learning more about Guaranteed Lifetime Withdrawal Benefits (GLWBs), which can add flexibility for clients who are still hesitant to lock funds into the annuity structure.
GLWB: the basics
Annuity income riders essentially guarantee that a client will receive a certain amount of income throughout retirement, regardless of market performance. Once the client begins to receive payouts, those payouts are guaranteed for life, even if the client’s funds within the annuity structure malfunction.
IBCs guarantee that the customer will be able to withdraw a certain percentage of the value of the customer’s benefit basewhich has increased by a guaranteed amount during the capitalization period, at any time and without incurring any penalty (including during the capitalization phase).
In other words, an annuity with a GRV can allow the client to stay invested in the market while locking in a guaranteed income stream in retirement.
The GLWB withdrawal amount that is available will be subject to an annual cap, which serves to ensure that the client will always have annuity funds to draw upon later in life. Typically, the guarantee will allow the customer to withdraw between 5% and 10% under the endorsement.
Since GLWB riders allow the client to avoid surrender charges and penalties when making “early” withdrawals under the rider, they will also increase the overall cost of the annuity. Some insurers allow the customer to choose whether the GLWB rider fee will be deducted from the annuity principal or from withdrawals made under the rider. In most cases, the fee will be between 0.5% and 1.5% of the aggregate cash value of the annuity.