An income rider adds a guaranteed lifetime paycheck to a deferred annuity without giving up the account. The guarantee is built on a bookkeeping number called the benefit base, and almost every misunderstanding about these riders starts there. This page explains the base, how it grows, what you can take from it, what it costs, and when a simpler product does the job better.
An income rider, formally a guaranteed lifetime withdrawal benefit or GLWB, is an optional feature on a Fixed index annuity or Variable annuity. For an annual fee, the carrier promises a set income for life, even if the account runs out of money. You keep ownership of the account value, keep the Death benefit, and can still cancel or surrender the contract.
The promise is sized off a benefit base. The base grows by a stated roll-up rate while you wait, and the income is the base times a payout percentage set by your age when you start. The base is not cash. You cannot withdraw it, and your beneficiaries do not inherit it.
Our stance: the roll-up is not a return. Compare riders on the dollars of guaranteed income per $100,000 at the age you will actually start, then on the fee, then on everything else.
Usually the wrong answer when
You do not plan to turn on lifetime income within about ten years of buying, you need the money as a lump sum, or you already have enough guaranteed income from Social Security and a pension to cover essentials. In those cases the fee buys a guarantee you will never use, and an Accumulation FIA or a MYGA without a rider will almost always leave you with more money. If you want the most income per dollar starting now, compare a SPIA first.
What is an income rider on an annuity?
DefinitionAn income rider is an optional add-on to a deferred annuity that guarantees a set annual withdrawal for life, for a fee, while you keep ownership of the account value.
You buy a deferred annuity, usually a Fixed index annuity, and elect the rider at issue. The carrier tracks a separate Benefit base that grows by a Roll-up rate during the waiting years. When you turn income on, the carrier multiplies the base by a Payout percentage for your age and pays that amount every year for as long as you live.
The payments come out of your own account value first. If the account is ever drawn to zero by those payments, the carrier keeps paying from its own funds. That continuation is the insurance you are paying the Rider fee for.
- You keep: the account value, free withdrawals, the Death benefit, and the right to surrender.
- You give up: roughly 1% of value a year in fees, and the full upside of the account, since fees and payments reduce it.
Illustrative
$100,000 at age 60, roll-up 7% simple for 10 years, payout 5.5% at 70. Benefit base at 70 is $170,000, guaranteed income is $9,350 a year for life. The account value at 70 might be $120,000 or $140,000 depending on index credits and fees; the $9,350 does not depend on it.
Watch for
The rider is a floor, not a forecast. Illustrations that show the account value growing while you draw income are using non-guaranteed index assumptions. Judge the rider on the guaranteed column only: base, payout percentage, fee. See Guaranteed column.
Related: GLWB · Benefit base · Payout percentage · Rider fee · Income FIA
What does GLWB stand for and is it the same as an income rider?
DefinitionGLWB stands for guaranteed lifetime withdrawal benefit, the contract name for the income rider most fixed index and variable annuities offer.
“Income rider” is the sales name. “GLWB” is what the rider endorsement is called in the contract and the prospectus. The two mean the same thing on nearly every fixed index annuity: a guaranteed annual withdrawal for life, sized from a benefit base, without annuitizing the contract.
Two related riders are not the same and are easy to confuse:
- GMWB: guarantees withdrawals until you have recovered a set amount, usually your premium, not for life.
- GMIB: guarantees a minimum income only if you annuitize the contract, giving up the account value.
Watch for
If a quote or illustration says “guaranteed income” without the word “lifetime” or “withdrawal,” ask which of the three it is. A GMWB that runs out at age 80 and a GMIB that forces annuitization are different promises at different prices.
Related: Income rider · GMWB · GMIB · GMDB · Lifetime income amount
What is the benefit base, and is it real money?
DefinitionThe benefit base is a bookkeeping value used only to calculate your lifetime income; it is not cash, cannot be withdrawn or surrendered, and is not paid to beneficiaries.
Every income rider tracks two numbers. The Account value is your money: premium plus interest credits, minus fees and withdrawals. The benefit base is a separate figure the carrier maintains alongside it for one purpose, to compute the guaranteed withdrawal. The two start at the same amount and then move apart.
The base grows by the rider’s rules, not by what the account earns:
Because the base is not money, a carrier can afford to grow it at a rate it could never pay on cash. A 7% roll-up on the base costs the carrier far less than 7% interest on the account, because the base is only ever converted to income at 4% to 6% a year, spread over your lifetime.
Illustrative
$100,000 premium, 7% simple roll-up. After 10 years the benefit base is $170,000. The account value, after a mix of index credits and a 1% rider fee, might be $125,000. If you surrender, you get the account value less any surrender charge. If you die, your beneficiaries get the account value. If you turn on income at 5.5%, you get $9,350 a year, and that number comes from the $170,000.
Watch for
Statements print both numbers, and the larger one is the base. Clients regularly read “$170,000” as their balance, plan around it, and are upset when the surrender value is $125,000. Say it to your spouse this way: the base is the number the carrier uses to figure the paycheck, and the account is the money.
Nothing about a bigger base is good on its own. A base of $200,000 with a 4.5% payout pays $9,000; a base of $170,000 with a 5.5% payout pays $9,350. See The roll-up headline trap.
Related: Benefit base vs account value · Why you can’t withdraw the benefit base · Roll-up rate · Payout percentage · Account value
Why does my statement show two different values?
DefinitionThe account value is your money and moves with interest credits, fees and withdrawals; the benefit base is the rider’s income calculation figure and moves only by the rider’s own rules.
On most contracts the two start equal and then diverge. The base usually pulls ahead because its roll-up is a guaranteed fixed percentage, while the account earns index credits that are often lower and pays the Rider fee every year. In strong index years the account can catch up, and if it passes the base at an anniversary, a Step-up resets the base to match.
Each value has its own job:
Illustrative
Year 8 statement: account value $118,000, benefit base $156,000. Free withdrawal available is 10% of $118,000, or $11,800. Guaranteed income if started today at 5% is 5% of $156,000, or $7,800. A full surrender pays $118,000 less the surrender charge.
Watch for
A widening gap is not a sign the rider is working well. It is a sign the account is earning less than the roll-up, which is normal, and the gap is exactly what the carrier expects to close by paying your income from your own account for 15 to 20 years before its own money is at risk.
Related: Benefit base · Account value · Step-up · Surrender value · Account value reaches zero
Why can’t I just withdraw my income rider’s value?
DefinitionThe benefit base can never be withdrawn because it was never deposited; it is a formula input the carrier can promise to grow precisely because it will only ever be paid out slowly, as income, over a lifetime.
The carrier invests your premium in bonds earning, say, 5%. It cannot credit 7% to a cash balance; it would lose money. It can promise a 7% roll-up on a benefit base because the base is only ever converted at 5% or 6% a year, and the first 15 to 20 years of those payments come out of your own account value. The carrier’s money is at risk only if you live long enough to exhaust the account.
So the base is a way of describing the size of a lifetime paycheck, not a way of describing a pile of money. If it were withdrawable, the pricing would collapse and the roll-up would have to equal the bond yield.
Illustrative
$100,000 grows to a $170,000 base in ten years. Taking $8,500 a year at 5%, you would need 20 years of payments just to receive the $170,000 once. A carrier that let you take the $170,000 on day one would have paid you a 7% guaranteed return out of a 5% portfolio.
Watch for
Some agents describe the base as “your income account” or “your protected value.” Both phrases invite the mistake. If you hear “value,” ask: can I take this out, and will my kids get it? If the answer to both is no, it is a benefit base.
Related: Benefit base · Benefit base vs account value · Lifetime income amount · Death before or during income · The liquidity trade-off
What is a built-in income benefit with no rider fee?
DefinitionBuilt-in income is a lifetime withdrawal guarantee included in the base contract with no stated rider fee; the cost is taken through lower caps and participation rates instead.
Some income FIAs have the guarantee written into the base contract. There is no 1% charge on the statement. Instead the carrier spends less of its Options budget on index crediting, so the caps and participation rates run below what an Accumulation FIA from the same carrier offers.
The benefit base, roll-up and payout mechanics otherwise work the same way. Some contracts with built-in income let you add a priced rider on top for a higher roll-up or payout.
Illustrative
Carrier offers an accumulation FIA with a 9% cap and an income FIA with built-in income and a 5% cap. On a $100,000 account that earns the cap in a good year, the difference is $4,000 of interest. That is the rider fee, just not labeled as one.
Watch for
“No fee” does not mean free. Compare the guaranteed income and the caps against a priced-rider contract. If you may never turn income on, built-in income is a poor fit, because you pay through weaker crediting every year regardless.
Related: Income rider · Income FIA · Rider fee · Options budget · Cap rate
Seven ways the benefit base gets bigger before income starts. None of them is a return on your money. Every one of them has to be read next to the Payout percentage to mean anything.
Is the roll-up rate what my money earns?
DefinitionThe roll-up rate is the guaranteed annual percentage by which the benefit base grows during the deferral years; it applies only to the benefit base, never to the account value.
Each contract anniversary during the Roll-up period, the carrier increases the Benefit base by the roll-up rate. Typical rates run 5% to 8% simple or 4% to 7% compound. The roll-up stops when income starts, when the roll-up period ends, or when the contract reaches a stated age, whichever comes first.
The roll-up does not touch the account value. Your money earns whatever the index strategies credit, less fees. The two figures are tracked separately, and the roll-up is the one that is guaranteed.
Illustrative
$100,000 premium, 7% simple roll-up: the base is $107,000 after year one, $170,000 after year ten. In the same ten years the account might earn 3% to 5% a year on average and pay a 1% fee. The 7% is not a return, and no 7% of anything is ever available as cash.
Watch for
The roll-up is the most-marketed number on an income rider and the least important. A carrier can offer any roll-up it likes and recover the cost through a lower payout percentage. Ask for guaranteed income in dollars at your start age and compare that. See The roll-up headline trap.
Related: Simple vs compound roll-up · Roll-up period · Benefit base · Payout percentage · The roll-up headline trap
What is the difference between a simple and a compound roll-up?
DefinitionA simple roll-up adds the same dollar amount to the benefit base each year, a fixed percentage of the original base; a compound roll-up applies the percentage to the prior year’s grown base, so the dollar additions increase each year.
Simple: base after n years = starting base times (1 + rate times n). Compound: base after n years = starting base times (1 + rate) to the power n. For short deferrals the gap is small. Past seven or eight years compound pulls well ahead, which is why carriers quoting a high compound rate often cap the Roll-up period at ten years.
Use the roll-up and payout explainer below to run your own figures.
Illustrative
$100,000 at 7% for ten years: $170,000 simple, $196,715 compound. At a 5% payout the simple base pays $8,500 and the compound base pays $9,836. If the compound contract charges a 0.25% higher fee and a 0.50% lower payout, the gap mostly closes.
Watch for
“7% compound” and “7% simple” are different products at different prices. Carriers know the word compound sells. Convert every quote to guaranteed dollars of income at your start age before deciding which is richer.
Related: Roll-up rate · Roll-up period · Benefit base · Lifetime income amount
How long does the roll-up keep going?
DefinitionThe roll-up period is the maximum number of years the benefit base earns roll-up credits; after it ends, the base stops growing unless a step-up occurs.
Ten years is the most common period. Some riders run 15 or 20 years, some to a stated age such as 85, and a few run until income starts with no limit. A handful allow a one-time restart of a new ten-year period if income has not begun, sometimes at a new fee.
The period starts at issue, not at the age you would like income. A 55-year-old buying a ten-year roll-up has a base that stops growing at 65 whether or not income starts then.
Illustrative
Bought at 58 with a ten-year 7% simple roll-up: base is $170,000 at 68 and still $170,000 at 72. Waiting those four extra years adds nothing to the base, though the Payout percentage for age 72 may be higher than for 68.
Watch for
Match the roll-up period to your real start age. A rider whose roll-up ends five years before you need income leaves you paying the fee for five years of nothing. If your start date is uncertain, a rider with a longer or restartable period, or a Deferral credit design, fits better.
Related: Roll-up rate · Income activation · Deferral credit · Step-up · Contract anniversary
What is a benefit base bonus and is it the same as a premium bonus?
DefinitionA benefit base bonus is a percentage added to the benefit base at issue, often 5% to 20%, that increases future income but is never added to your account value.
The bonus goes onto the Benefit base only. A 10% bonus on $100,000 starts the base at $110,000 while the account value stays at $100,000. The Roll-up rate then applies to the larger base.
It is a different thing from a Premium bonus, which is credited to the account value itself, usually with Bonus vesting. Some contracts offer both. Ask which value each bonus is applied to.
Illustrative
$100,000 premium, 10% benefit base bonus, 6% simple roll-up for ten years: base starts at $110,000 and adds $6,600 a year, reaching $176,000. At a 5% payout that is $8,800 a year. The same premium in a no-bonus rider at 7% simple reaches $170,000 and pays $8,500 at the same payout. The bonus is worth about $300 a year of income here.
Watch for
A large benefit base bonus often comes paired with a lower payout percentage or a lower roll-up. The bonus is the loud number; the income is the one that matters. A 20% bonus with a 4.5% payout can pay less than no bonus with a 5.5% payout.
Related: Benefit base · Premium bonus · Roll-up rate · The roll-up headline trap
What does it mean when an income rider “stacks”?
DefinitionStacking means the benefit base grows each year by the index interest credited to the account plus a fixed rider credit, so good index years increase future income rather than just the account.
A stacking rider replaces or supplements the fixed Roll-up rate. At each anniversary the benefit base increases by the percentage the account earned from its index strategies, plus a stated stacking credit, often 3% to 5%. In a 0% index year the base still grows by the stacking credit.
The design links the base to real performance. It rewards strong index years, and it can grow the base past the roll-up period on some contracts because there is no fixed schedule to expire.
Illustrative
Base $150,000, index strategies credit 5% this year, stacking credit 4%: base grows 9% to $163,500. A fixed 7% roll-up on the same base reaches $160,500. In a 0% index year the stacking rider grows 4% to $156,000 and the fixed roll-up still grows 7% to $160,500.
Watch for
Stacking illustrations lean on non-guaranteed index assumptions. The guaranteed part is only the stacking credit, often half the fixed roll-up a competitor guarantees. Compare on the guaranteed column: what does the base reach if the index credits zero every year?
Related: Roll-up rate · Step-up · Benefit base · Guaranteed column · Index-linked interest
What is a step-up on an income rider?
DefinitionA step-up resets the benefit base to the account value at a contract anniversary when the account value is higher, locking in strong index performance as future income.
At each anniversary, usually on and after the first, the carrier compares the two values. If the Account value exceeds the Benefit base, the base is stepped up to equal it. The roll-up then continues from the new, higher base. Step-ups never reduce the base.
Step-ups are rare in practice. For the account to pass the base it must out-earn the roll-up after paying the rider fee, which a 7% roll-up makes unlikely in most years. They matter most on riders with low or no roll-up and on contracts where income has already started.
Illustrative
Year 5 anniversary: base $135,000 after a 7% simple roll-up, account value $140,000 after several strong index years. The base steps up to $140,000 and the next year’s roll-up credit becomes 7% of $140,000, or $9,800, instead of $7,000.
Watch for
Some contracts let the carrier raise the Rider fee to the current new-business rate at a step-up. Read the Rider fee changes language. Many riders let you decline a step-up to keep the old fee; ask whether yours does.
Related: Benefit base · Account value · Roll-up rate · Rider fee changes · Stacking
What is a deferral credit, and how is it different from a roll-up?
DefinitionA deferral credit raises the payout percentage, rather than the benefit base, for each year you wait to start income, typically by 0.10% to 0.50% per year of deferral.
Some riders grow the income by increasing the Payout percentage instead of, or in addition to, rolling up the base. The schedule is stated in the contract: a starting percentage at the earliest eligible age, plus a fixed addition for every full contract year income is deferred, up to a maximum.
Because the base is not inflated, these riders often keep the base equal to the account value or use a modest roll-up. The income math is the same: base times the percentage you have earned by waiting.
Carriers also use the phrase “deferral credit” loosely for ordinary roll-up credits. Check which value the credit changes.
Illustrative
Payout 5.0% at 65 plus a 0.10% deferral credit per year waited. Start at 70: 5.5%. Start at 75: 6.0%. On a $150,000 base that is $7,500, $8,250 or $9,000 a year. A competing rider with a 7% simple roll-up and a flat 5% payout at 70 pays $8,500 on the same $100,000 premium.
Watch for
A deferral credit design has no roll-up period to expire, which suits buyers who are not sure when they will start. The trade is a lower income if you start early. Run both designs at the two or three ages you might actually begin.
Related: Payout percentage · Age bands · Roll-up period · Roll-up rate · Income activation
Nine terms that turn a benefit base into a paycheck. The payout percentage and your age when you start do more to set your income than anything in the Growth group.
What is the payout percentage and why does it matter more than the roll-up?
DefinitionThe payout percentage is the share of the benefit base paid to you each year for life once income starts; it is fixed by your age at activation and whether the income covers one life or two.
Income equals Benefit base times payout percentage. The percentage is set when you activate income, from a table in the rider keyed to Age bands and to single or joint coverage. Once set, it does not change for a level-income election.
It matters more than the roll-up because it is the second factor in the only equation that produces dollars. A carrier can pay for a loud roll-up with a quiet payout percentage and most buyers never notice.
Top quotes from the MAS income rider calculator (live AnnuityRateWatch data), October 2026: guaranteed first-year income as a percentage of a $100,000 premium, income starting at that age, Indiana. The sixth-best quote in each row was roughly 1 point lower. Your state and start date change the figures; run your own.
Two cautions when you read a rider’s own table. The printed payout percentage is applied to the Benefit base, which on bonus designs starts above the premium, so a rider showing 6.65% can pay more dollars than one showing 7.5%. And these figures are for income starting now; deferring adds roll-up or deferral credits on top.
Illustrative
$200,000 premium at age 65, income starting now: the top single-life quote pays about $16,000 a year (8.0%), joint life about $14,800 (7.4%). Wait to 70 and the single-life rate rises to about 8.6%, before counting any roll-up on the base during the wait.
Watch for
Compare riders on guaranteed dollars at the age you will start, never on roll-up alone. Two riders with the same base can differ by 20% in income because of the payout table. See The roll-up headline trap.
Related: Age bands · Single life payout · Joint life payout · Lifetime income amount · The roll-up headline trap
How does my age affect the income I can take?
DefinitionAge bands are the rows of the payout table that assign a higher payout percentage to older starting ages, in steps of one year or five years, because the carrier expects to pay for fewer years.
The payout table lists an age range and a percentage for each row. Some riders step every year (age 65: 5.0%, age 66: 5.1%). Others use five-year bands (65 to 69: 5.0%, 70 to 74: 5.5%). Within a five-year band, waiting from 65 to 69 adds nothing to the percentage, though the roll-up may still grow the base.
The age used is your attained age on the day income starts, or the younger spouse’s age for joint income on most contracts.
Illustrative
Five-year bands: 65 to 69 pays 5.0%, 70 to 74 pays 5.5%. A buyer who turns 70 in March and activates in February gets 5.0% for life. Waiting one month would have added 0.5% of the base, or $850 a year on a $170,000 base, forever.
Watch for
Check whether the table steps yearly or in bands before choosing a start date. On banded riders the best start dates sit just after a birthday that crosses a band. On yearly riders every year of waiting earns a little more.
Related: Payout percentage · Income activation · Joint life payout · Issue age · Deferral credit
What is a single life payout on an income rider?
DefinitionA single life payout guarantees the income for as long as one covered person lives, with the higher payout percentage, and stops at that person’s death.
The covered person is usually the Owner or Annuitant. Income continues while that person is alive, regardless of what happens to the account value. At death, payments stop and any remaining Account value goes to the Beneficiary as a death benefit.
Single life pays 0.50% to 1.00% of the base more per year than joint life on the same rider because the carrier expects to pay for one lifetime, not the longer of two.
Illustrative
Base $170,000, age 70. Single life at 5.5% pays $9,350 a year. Joint life at 5.0% pays $8,500. The $850 difference is the price of covering a spouse. If the account value is exhausted and the single owner dies first, the spouse receives nothing further.
Watch for
Married buyers sometimes choose single life for the higher number and plan to “switch later.” Most riders do not allow adding a spouse after income starts. Decide before activation, and if the spouse is younger or healthier, run the joint numbers seriously.
Related: Joint life payout · Payout percentage · Death before or during income · Annuitant · Owner
How does a joint life payout work for a married couple?
DefinitionA joint life payout guarantees the income for as long as either spouse lives, at a payout percentage usually 0.50% to 1.00% lower than single life and based on the younger spouse’s age.
Both spouses are named as covered persons. Income continues unchanged at the first death and ends at the second. The payout percentage is set from the Age bands using the younger spouse’s age on most riders, and a few use the older or an average.
Joint coverage usually requires the spouses to be joint owners or owner and sole primary Beneficiary, and the contract must allow Spousal continuation. Some riders require the younger spouse to have reached a minimum age, often 50 or 55, before joint income can begin.
Illustrative
Husband 70, wife 64, base $170,000. Single life on the husband at 5.5% pays $9,350. Joint life priced at the wife’s age band of 60 to 64 at 4.0% pays $6,800, and continues for her lifetime after his death. The couple gives up $2,550 a year to protect her income.
Watch for
The younger-spouse rule can cut income hard when there is a large age gap. Compare the joint rider income with a single-life rider plus a separate Death benefit or life insurance, and with a Joint and survivor SPIA. Also confirm what happens to joint coverage in a divorce; see Divorce and an income rider.
Related: Single life payout · Age bands · Spousal continuation · Joint and survivor · Divorce and an income rider
How do I turn on the income, and can I turn it off?
DefinitionIncome activation is the written election that starts lifetime withdrawals, fixes your payout percentage from your age that day, and ends the roll-up on the benefit base.
You submit the carrier’s income election form choosing single or joint life, level or increasing payments, and a payment frequency. The carrier calculates the Lifetime income amount from the Benefit base on the activation date and begins payments.
What activation changes:
- Roll-up stops. The base is frozen except for step-ups and excess withdrawal reductions.
- Payout percentage locks. Your age band that day sets it for life.
- Free withdrawals are usually replaced by the guaranteed amount; taking more is an excess withdrawal.
Most riders let you stop and restart payments. Payments you skip do not accumulate, and some contracts treat a restart as a new activation at a new age.
Illustrative
Activate at 70 with a $170,000 base and a 5.5% single payout: $9,350 a year, or $779 a month. Had you activated at 69 in a five-year band paying 5.0%, the income would be $8,500 for life, and no later birthday would change it.
Watch for
Activation is a one-way door on the payout percentage. Confirm the age band, the base after the most recent anniversary roll-up, and any Income start waiting period before signing. A one-month timing error can cost 0.5% of the base every year for life.
Related: Payout percentage · Age bands · Income start waiting period · Lifetime income amount · Level income
How soon after buying can I start the income?
DefinitionThe income start waiting period is the minimum time, usually one contract year, and the minimum age, often 50 to 60, that must pass before lifetime income can be activated.
Most riders require at least one full contract year before income can begin. Some allow activation on day one, often at a lower first-year payout. Separately, the covered person must have reached a minimum age, with 50, 55 and 60 all common, and the payout table starts at that age.
Activating before the end of the first Roll-up period year also means forfeiting the first roll-up credit on riders that credit at the anniversary.
Illustrative
Buyer is 58, rider requires age 60 and one contract year. The earliest activation is the second contract anniversary, at 60. A buyer who needs income at 58 should be looking at a SPIA, not an income rider.
Watch for
If you need income inside a year, an income rider is the wrong tool. Its roll-up has had no time to work, the payout percentage is at its lowest band, and a SPIA will usually pay more per dollar. See Income rider vs SPIA.
Related: Income activation · Age bands · Income rider vs SPIA · Roll-up period
What is level income on an income rider?
DefinitionLevel income is the default payout option, a fixed annual dollar amount that never decreases and never increases, paid for life.
The Lifetime income amount is calculated once at activation and stays the same every year. It can only change in three ways: an excess withdrawal lowers it, a Step-up after activation raises it on riders that still allow step-ups, or a Confinement income multiplier temporarily increases it.
Level income uses the higher payout percentage in the table. It is the right choice when the income covers fixed expenses and you have other assets for inflation.
Illustrative
$9,350 a year from age 70. At 3% inflation, that buys what $6,950 buys today by age 80 and $5,170 by age 90. The dollar amount is guaranteed; its purchasing power is not.
Watch for
Carriers illustrate level income as a flat line, which looks safe. Over a 25-year retirement it loses roughly half its buying power. Decide deliberately whether the rider is covering essentials that rise with inflation or a fixed cost like a mortgage that does not.
Related: Increasing income · Lifetime income amount · Payout percentage · Cost-of-living increase rider
Can my rider income go up after it starts?
DefinitionIncreasing income is an optional payout election that starts at a lower payout percentage and raises the annual income by the index interest credited to the account each year, never decreasing.
At activation you choose increasing instead of level. The starting Payout percentage is typically 0.50% to 1.50% lower. Each anniversary, if the index strategies credit interest, the income is increased by that same percentage. In a 0% year the income holds. Some designs instead increase by a fixed percentage such as 2% or 3%, or stop increasing once the account value hits zero.
Illustrative
Base $170,000 at 70. Level at 5.5% pays $9,350. Increasing at 4.0% starts at $6,800. If the account credits 4% a year, the increasing income passes $9,350 in about year nine. Catching up on total dollars received takes well past a decade.
Watch for
Increases depend on non-guaranteed index credits, which shrink as the account value is drawn down and may stop entirely when the account reaches zero. The illustration will show a rising line built on assumed returns. Ask what the income is if the index credits nothing, and compare that to level.
Related: Level income · Payout percentage · Index-linked interest · Account value reaches zero · CPI-linked payments
What is the lifetime income amount, and how is it calculated?
DefinitionThe lifetime income amount is the guaranteed dollar figure you can withdraw each contract year for life, equal to the benefit base at activation multiplied by your payout percentage.
Benefit base times payout percentage, calculated on the activation date. It is paid from your Account value until that runs out and from the carrier afterward. It is reduced only by excess withdrawals, increased only by a post-activation Step-up, an Increasing income election, or a Confinement income multiplier.
Three ways to express the same number when comparing riders:
- Dollars per year at your start age, the figure to compare across carriers.
- Income per $100,000 of premium, which strips out deposit size.
- Percentage of the original premium, often 8% to 10% after a ten-year deferral, which some agents misleadingly call the “return.”
Illustrative
$100,000 premium, base $170,000 at 70, payout 5.5%: lifetime income amount $9,350. That is 9.35% of the original premium, which sounds like a yield. It is a withdrawal, mostly of your own money, for roughly the first 13 years.
Watch for
The percentage-of-premium framing is where “guaranteed 9% income” headlines come from. It is not interest. Ask instead how many years of payments it takes to receive your premium back, and what the account value is projected to be at that point in the guaranteed column.
Related: Benefit base · Payout percentage · Income activation · Excess withdrawals on an income rider · Account value reaches zero
Explainer: roll-up and payout calculator
Illustrative. Enter a premium, a roll-up rate, the years you will wait, and the payout percentages for single and joint life at your start age. The table shows the benefit base under simple and compound roll-up and the guaranteed annual income from each. No carrier’s actual schedule is used.
Ignores rider fees, step-ups, bonuses and index credits. The benefit base shown is not withdrawable. Illustrative only.
Three terms about what the guarantee costs. The fee percentage is on every quote; what it is charged against is in the fine print and matters more.
How much does an income rider cost?
DefinitionThe rider fee is an annual charge, typically 0.75% to 1.50% of the benefit base or account value, deducted from the account value every year the rider is in force, including years the index credits nothing.
The carrier deducts the fee from the Account value at each anniversary, or monthly on some contracts. The fee is charged during the deferral years and usually continues during income until the account value reaches zero. On a Fixed index annuity the fee is the only way the account value can fall below the prior year’s value, since index credits never go negative.
Typical ranges, stated broadly: 0.90% to 1.25% is common, 1.50% is on the high side, and a few riders charge more for richer roll-ups. See Fee basis for what the percentage is multiplied by, and Rider charges for how riders are priced in general.
Illustrative
Account value $110,000, rider fee 1.00% on the account value: $1,100 deducted this year. In a 0% index year the account falls to $108,900. Over ten deferral years at a flat 1% the fee removes roughly 10% of the account’s value and 10% of its compounding.
Watch for
The fee buys the lifetime guarantee. If you are not likely to activate income, you are paying 1% a year for nothing, and an Accumulation FIA with no rider will end with more money. Decide whether you will use the income before you decide which rider is cheapest.
Related: Fee basis · Rider fee changes · Rider charges · Built-in income · Accumulation FIA
Is the rider fee charged on the account value or the benefit base?
DefinitionThe fee basis is the value the rider fee percentage is multiplied by, either the account value or the larger benefit base; a fee on the benefit base takes a bigger share of your actual money than the stated percentage suggests.
The fee is always paid from the Account value, because that is the only real money. But the percentage can be applied to either value. When the Benefit base is larger, which is nearly always after a few years of roll-up, a benefit-base-basis fee removes more dollars each year than the same percentage on the account value.
To compare riders, convert a benefit-base fee into an effective rate on the account: fee dollars divided by account value.
The gap widens every year the base outgrows the account, and it is widest during income, when the account is being drawn down while the base stays frozen.
Illustrative
Year 15 of income: account value $40,000, benefit base $170,000, fee 1.00% on the base. The fee is $1,700, which is 4.25% of the remaining account. Combined with a $9,350 income payment, the account loses $11,050 that year against perhaps $1,500 of index credits.
Watch for
A 0.95% fee on the benefit base can cost more than a 1.20% fee on the account value. Quotes rarely say which basis applies; the rider endorsement does. Ask directly, and if the answer is “benefit base,” run the effective rate at years 5, 10 and 15.
Related: Rider fee · Benefit base vs account value · Account value reaches zero · Rider charges
Can the carrier raise my rider fee after I buy?
DefinitionMost riders let the carrier change the fee, up to a maximum stated in the contract, usually only at a step-up or at the start of a new roll-up period; the fee is otherwise fixed.
The rider endorsement states a current fee and a maximum fee, often 1.50% to 2.50%. Between those, the carrier may reset the fee at specific events:
- At a Step-up: the fee may move to the rate the carrier charges new buyers that year. Many riders let you decline the step-up and keep the old fee.
- At a roll-up restart: electing a new Roll-up period usually comes with the then-current fee.
- Never otherwise on most fixed index annuity riders; variable annuity riders tend to give the carrier more latitude.
Carriers raise rider fees on new business when interest rates fall or when their lifetime-income experience worsens. In-force contracts are protected except at the events above.
Illustrative
Rider fee 1.00%, maximum 2.00%. A step-up offer arrives in year 6 with the fee moving to 1.35%. On an account value of $140,000 that is $490 more per year for life, in exchange for a base increase from $135,000 to $140,000, worth about $275 a year of income at 5.5%. Declining the step-up is the better trade here.
Watch for
Find the maximum fee and the reset triggers in the endorsement before buying. A rider with a 1.00% fee and a 2.50% maximum is a different promise from one with a 1.00% fee and a 1.25% maximum. If the fee is on the benefit base, the maximum matters twice as much.
Related: Rider fee · Step-up · Fee basis · Guaranteed vs non-guaranteed elements
Five situations that the brochure covers in a sentence and the contract covers in a page. The first one is the reason the rider exists; the other four are where buyers get surprised.
What happens to my income when the account value hits zero?
DefinitionWhen guaranteed income payments and fees exhaust the account value, the carrier continues paying the same lifetime income amount from its own funds until the covered person or persons die; nothing further is paid at death.
This is the insurance. For roughly the first 12 to 18 years of income you are spending your own money, with the carrier collecting a fee for the promise. If you live long enough for the Account value to reach zero through scheduled payments, the carrier’s obligation kicks in and the paycheck continues unchanged.
At that point the contract changes character:
- Income continues at the same amount for life, or the longer of two lives on joint coverage.
- Fees stop, because there is nothing to charge them against.
- Death benefit is zero. Beneficiaries receive nothing.
- Increases under an Increasing income election usually stop, since there are no index credits to drive them.
- Flexibility ends. No lump sum, no excess withdrawals, no surrender.
If the account reaches zero because of an excess withdrawal rather than scheduled payments, most riders terminate without any continuing income.
Illustrative
Income $9,350 a year from 70 on a $170,000 base, fee 1% on the base, account value $125,000 at 70 earning 3% a year on average. Payments plus fees take roughly $11,000 a year against $3,000 to $4,000 of credits. The account reaches zero around age 84 or 85. From then on the carrier pays $9,350 a year for life. A buyer who dies at 84 never collected a dollar of the carrier’s money.
Watch for
Ask the carrier for the guaranteed-column year in which the account value hits zero at your planned start age. If that age is past your family’s typical lifespan, the rider is mostly a way of spending your own money with a fee attached, and a SPIA or a no-rider contract deserves a look. If it is well inside your expected lifetime, the rider is doing real work.
Related: Lifetime income amount · Rider fee · Death before or during income · Longevity risk · Income rider vs SPIA
What happens if I take more than the guaranteed amount?
DefinitionAn excess withdrawal is any amount taken above the lifetime income amount in a contract year; it reduces the benefit base and future income in the same proportion it reduced the account value, and can terminate the rider if it drains the account.
Before income starts, withdrawals within the Free withdrawal provision usually reduce the Benefit base dollar for dollar or pro rata, and some riders also cancel that year’s roll-up. After activation, the guaranteed payment is the allowance; anything above it is excess.
The reduction is pro rata, not dollar for dollar, and that is the trap. The base is cut by the same percentage the excess took from the account value. Because the account is usually smaller than the base, a given dollar amount removes a larger percentage of the base than it would dollar for dollar.
Excess withdrawals also face the ordinary Surrender charge and Market value adjustment if taken inside the surrender period. Most riders exempt required minimum distributions from excess treatment.
Illustrative
Base $200,000, account value $150,000, income $10,000 a year. You take an extra $15,000 for a roof. That is 10% of the account value, so the base is cut 10% to $180,000 and the income falls to $9,000 a year for life. Dollar for dollar, the base would have dropped to $185,000; pro rata, it dropped to $180,000.
Watch for
Never take an unplanned lump sum from a contract with an active rider without asking for the exact effect in writing. If you expect to need lump sums, keep that money outside the rider contract. An income rider is for money you will only ever take as income.
Related: Excess withdrawal · Free withdrawal provision · Benefit base · Lifetime income amount · RMDs while taking income
What do my beneficiaries get if I die with an income rider?
DefinitionAt death, beneficiaries receive the account value under the contract’s death benefit, not the benefit base; if income has started and the account is exhausted, they receive nothing unless a spouse continues joint income.
The rider does not change the Standard death benefit. Whether death occurs before or during income, the beneficiary gets the contract’s death benefit, which on most fixed index annuities is the account value with no surrender charge.
- Before income starts: account value to the beneficiary. The roll-up and the base disappear with nothing paid.
- During income, single life: remaining account value, if any. Payments stop.
- During income, joint life: the surviving spouse continues the same income for life under Spousal continuation. Account value passes at the second death.
- After the account hits zero: nothing, unless joint income continues.
A few riders let beneficiaries take the benefit base, rather than the account value, as a series of payments over five or more years. That option is a separate Enhanced death benefit rider on most contracts and is priced accordingly.
Illustrative
Base $170,000, account value $125,000, owner dies at 72 just after activating single-life income. Beneficiaries receive $125,000. The $170,000 base and the $9,350 lifetime income end. Had the owner elected joint life at $8,500, the spouse would receive $8,500 a year for life and the children would receive the account value remaining at her death.
Watch for
Agents sometimes imply the base is “protected for your family.” It is not. If leaving money to heirs matters, either elect joint life, buy an enhanced death benefit, or keep part of the money in a contract without a rider. The rider’s job is to pay you while you are alive.
Related: Standard death benefit · Enhanced death benefit rider · Spousal continuation · Joint life payout · Why you can’t withdraw the benefit base
What happens to an income rider in a divorce?
DefinitionA divorce decree can divide the annuity’s account value, but the income rider usually cannot be split: the carrier either terminates joint coverage, continues the rider on one spouse’s portion, or treats the transferred amount as a withdrawal that reduces the benefit base.
The decree or settlement tells the carrier what to do with the account value. For qualified money a transfer to the former spouse’s IRA is handled under the retirement account rules; for non-qualified money the carrier processes a partial transfer under the divorce order. Either way, the rider has its own rules:
- Joint life coverage usually ends. Most riders convert to single life on the remaining owner, sometimes at the single payout percentage and sometimes at the joint one.
- The departing spouse’s share is treated as a withdrawal on many contracts, reducing the Benefit base pro rata, and may carry a Surrender charge.
- A new contract for the former spouse, if the carrier issues one, is a new rider at new-business terms, with the roll-up starting over.
Tax treatment of the split follows the general rules in Annuities in divorce. The carrier’s divorce procedures and the rider endorsement control; get them in writing before the decree is drafted.
Illustrative
Joint owners, base $200,000, account value $150,000, decree awards 50% to each. Carrier transfers $75,000 to the ex-spouse’s new contract. Remaining owner’s base is cut pro rata by 50% to $100,000 and coverage converts to single life. The ex-spouse’s new contract starts with a $75,000 base and a fresh ten-year roll-up.
Watch for
Have your attorney obtain the carrier’s written divorce procedure before the settlement is final. A decree that says “split the annuity 50/50” without naming the rider treatment can cost one spouse the lifetime guarantee entirely. This is one of the few places where the contract fine print and a court order collide.
Related: Annuities in divorce · Joint life payout · Change of owner · Excess withdrawals on an income rider · Spousal continuation
Do required minimum distributions count as excess withdrawals?
DefinitionOn most income riders, a required minimum distribution from an IRA annuity is not treated as an excess withdrawal even when it exceeds the lifetime income amount, provided the RMD is calculated on that contract alone.
Once you reach the RMD age (currently 73, rising to 75 for later birth years), the IRS requires a minimum withdrawal from an IRA each year. Early in income the guaranteed payment usually exceeds the RMD. Later, as the IRS divisor shrinks, the RMD can exceed the guaranteed amount.
Riders handle this with an RMD-friendly provision, parallel to RMD-friendly free withdrawals on the base contract:
- The RMD on this contract can be taken without excess treatment, even above the guaranteed income.
- RMDs for other IRAs cannot be pulled from this contract without excess treatment on most riders.
- Before activation, taking RMDs may still reduce the base or cancel a roll-up credit on some riders; others exempt them.
How the RMD itself is calculated on an annuity with a rider is covered under RMDs from an annuity in an IRA and the Actuarial present value rule.
Illustrative
IRA annuity, age 80, account value $90,000, guaranteed income $9,350. The IRS divisor at 80 produces an RMD of roughly $4,500, below the guaranteed amount, so the $9,350 payment satisfies it. At 90 with $30,000 left, the RMD might be $2,500 while income stays $9,350. Either way, no excess withdrawal.
Watch for
Confirm the rider is RMD-friendly before buying in an IRA, and never aggregate other IRAs’ RMDs out of the rider contract. If you hold several IRAs, take each contract’s RMD from itself, or from the accounts without riders.
Related: RMD age · RMDs from an annuity in an IRA · RMD-friendly free withdrawals · Excess withdrawals on an income rider · Annuity inside an IRA
An income rider is one of four ways to buy a guaranteed lifetime paycheck. The other three usually pay more per dollar and give up more flexibility. The last entry here is the comparison most buyers never run.
Should I buy an income rider or a SPIA?
DefinitionA SPIA converts a lump sum into immediate lifetime income at a higher payout per dollar; an income rider pays less but keeps the account value, the death benefit and the option to change your mind.
A SPIA is pure insurance: the carrier pools your premium with others, pays Mortality credits, and the money is gone in exchange for the paycheck. An income rider is an account with a guarantee wrapped around it, so the carrier cannot pay as much.
Illustrative
Age 70, $100,000, income to start now. SPIA life with cash refund: about $7,000 a year, with any unpaid premium refunded at death. Income rider activated at issue: 5.5% of a $100,000 base, or $5,500 a year, with the account value as the death benefit. The rider pays $1,500 less for the flexibility.
Watch for
If you need income starting now, run a SPIA quote first and make the rider beat it on something you value. If you need income in ten years, the rider’s roll-up competes with a Deferred income annuity, not a SPIA. The rider wins mainly when you want the paycheck and are not willing to give up the account.
Related: SPIA · Payout rate · Mortality credits · Irrevocability · Income rider vs DIA
Should I buy an income rider or a deferred income annuity?
DefinitionA deferred income annuity locks in a future lifetime income today for an irrevocable premium and usually pays more; an income rider reaches a lower income at the same start age but keeps the account value and the ability to cancel.
Both products answer “I want guaranteed income starting in ten years.” A Deferred income annuity prices that income with mortality credits and no account to maintain, so it pays more per dollar. An income rider grows a benefit base and keeps your money liquid, subject to surrender charges.
- DIA: higher income, no account value, no death benefit without a Return of premium before income option, income start date fixed at purchase within a narrow window.
- Income rider: lower income, account value and death benefit retained, start date flexible within the Roll-up period, fee every year.
- Inside an IRA: a QLAC is the DIA version with RMD relief; a rider has no equivalent.
Illustrative
Age 60, $100,000, income at 70, single life. DIA life only: about $14,000 a year, nothing to heirs if death occurs before 70. Income rider with a 7% simple roll-up and 5.5% payout: $9,350 a year, account value to heirs at any point. The DIA pays about 50% more for giving up the money.
Watch for
The rider’s advantage is the exit. If there is a real chance you will not need the income, or will need the lump sum, the rider’s lower payout buys an option worth having. If the income is certain and heirs are covered elsewhere, the DIA’s extra income compounds for the rest of your life.
Related: Deferred income annuity · Deferral period · QLAC · Return of premium before income · Income rider vs SPIA
Should I turn on the rider or annuitize the contract?
DefinitionAnnuitizing converts the account value, not the benefit base, into guaranteed payments and ends your access to the money; turning on the rider pays income from the benefit base while you keep the account.
Every deferred annuity carries Annuitization options in the base contract, with or without a rider. At the Payout phase you can choose either path. They use different values and different rates:
The rider usually wins when the benefit base is far above the account value. Annuitization can win when the two are close, when you are older and the annuitization rate is high, or when the exclusion ratio on a non-qualified contract matters to you.
Illustrative
Age 75, account value $150,000, benefit base $180,000. Rider at 6.0%: $10,800 a year, account retained. Annuitize life with ten years certain at a 7.5% contract rate: $11,250 a year, account gone, with payments guaranteed to someone for at least ten years. The $450 difference buys irrevocability; the rider’s smaller check keeps $150,000 of flexibility.
Watch for
Ask the carrier for both numbers in writing before activating anything. Carriers rarely volunteer the annuitization quote because it ends the fee. And confirm whether annuitizing cancels the rider and its fee; on most contracts it does.
Related: Annuitization · Payout phase · Exclusion ratio · Gains-first taxation · Lifetime income amount
Why does the rider with the bigger roll-up pay me less?
DefinitionThe roll-up headline trap is choosing an income rider by its advertised roll-up rate when the payout percentage, applied to the base at your start age, is what sets the dollars you receive.
Income equals base times payout percentage. A carrier controls both factors and can make either one the headline. A high roll-up with a low payout and a modest roll-up with a generous payout can produce nearly the same income, or the modest one can win outright.
Rider A has the bigger brochure number on every line that is not money. Rider B pays $500 more a year for life and costs less. The explainer above lets you run any pair.
Illustrative
Same $100,000, but income starts at 65 after five years. Rider A: $135,000 base at 4.5% pays $6,075. Rider B: $125,000 base at 5.5% pays $6,875. The gap is larger at the shorter deferral because the roll-up has had less time to matter and the payout gap is the same.
Watch for
Never compare roll-ups. Compare guaranteed annual income in dollars per $100,000 at the exact age you will start, then the fee and its basis, then the death benefit and liquidity. If an agent leads with the roll-up, ask for the payout table before anything else. See Comparing quotes like for like.
Related: Roll-up rate · Payout percentage · Lifetime income amount · Comparing quotes like for like · Simple vs compound roll-up
My Annuity Store is a licensed insurance agency. This reference is general education, not a recommendation for any product or carrier, and it is not tax or legal advice. Rider features, fees, payout percentages and age limits vary by carrier, product and state; the rider endorsement controls. Tax remarks on this page are general education only. MAS does not give tax advice. Call 855-277-8088 or email info@myannuitystore.com with questions.
