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A Guide to Guaranteed Lifetime Withdrawal Benefit Riders (GLWB)
What is a GLWB Rider?
A GLWB Rider, or Guaranteed Lifetime Withdrawal Benefit Rider, is an optional rider available for a cost on some fixed index annuity and variable annuity contracts. Occasionally, a GLWB rider is built in to the annuity contract and is not optional (although this is a fairly new trend).
GLWB Riders Explained
Guaranteed Lifetime Withdrawal Benefit Riders (GLWB) provide additional guarantees above and beyond what are already included in an annuity contract. There are different varieties, but most commonly, a GLWB establishes a second account value called the benefit base. The benefit base is not a cash value and is never available for withdrawal in a lump sum. The Benefit Base is only used to calculate lifetime income payments.
Read our Ultimate Guide to Fixed Index Annuities if you are unfamiliar with how they credit interest or how they work in general.
Let’s consider an example. You purchase an index annuity with a GLWB at age 55 and intend to turn on your lifetime income payments at age 65. For illustrative purposes let’s assume the GLWB you purchase has a 10% simple roll-up rate and a 5% lifetime withdrawal at age 65. Additionally, let’s assume this GLWB Rider cost 95 bps.
Your account value would grow based on the performance of the market index you’ve allocated your money to and the crediting factors in your contract. The benefit base would grow by 10% simple each year guaranteed. So a $100,000 annuity would have a benefit base of $110,000 after year 1, $120,000 after year 2, $200,000 after year 10, etc.
Using our example of a 55 year old purchasing a $100,000 annuity with the above rider, the benefit base would be $200,000 guaranteed at age 65. Assuming a 5% lifetime withdrawal rate at age 65, the guaranteed lifetime withdrawal would be $10,000 ( .05 X $200,000). The $10,000 annual withdrawals would be subtracted from the account value each year in addition to the rider fee.
How to Calculate Guaranteed Lifetime Withdrawal Benefit Rider Fees
In almost every case the GLWB rider fee is calculated using the benefit base and subtracted from account value. So, a 95bps GLWB Rider fee may actually amount to more than 95bps because the account value is almost always less than the Benefit Base. Let’s assume in year 5 the $100,o00 annuity has an account value of $130,000 while the GLWB Benefit base it $150,000.
The annual fee would be $1425 ($150,000 x .0095) because it is calculated using the Benefit Base not account value. The $1425 would be subtracted from account value, we are assuming an account value of $130,000. $1425 of $130,000 is 1.1%, so in Essene the fee is really 1.1% of account value in the 5th year not .95%.
Index Annuities w/ Optional GLWB Rider Available
| Insurance Company | Annuity Name | Term | GLWB Riders | ||
|---|---|---|---|---|---|
| Guggenheim Life and Annuity Company | ViStar | 10 yrs | Optional | ||
| Guggenheim Life and Annuity Company | Highlander | 10 yrs | Optional | ||
| Allianz Life Insurance | Allianz 360 Annuity | 10 yrs | Included | ||
| North American Company | BenefitSolutions 10 | 10 yrs | Included | ||
| Protective Life | Protective Guaranteed Income Indexed Annuity | 10 yrs | Multiple | ||
| Oxford Life Insurance Company | Silver Select | 10 yrs | Optional | ||
| North American Company | Strategic Design Annuity X with Embedded Benefits Rider | 10 yrs | Included | ||
| National Western Life | NWL IMPACT 10 | 10 yrs | Optional | ||
| Fidelity & Guaranty Life | Performance Pro with GMWB | 10 yrs | Included | ||
| Fidelity & Guaranty Life | Prosperity Elite 10 Protection | 10 yrs | Included | ||
| Guaranty Income Life | WealthChoice 10 | 10 yrs | Optional | ||
| Guaranty Income Life | WealthChoice 10 PREMIUM BONUS | 10 yrs | Optional | ||
| Athene IA | Agility 10 | 10 yrs | Included | ||
| Oxford Life Insurance Company | Royal Select | 10 yrs | Optional | ||
| Global Atlantic Financial Group | Income 150+ SE | 10 yrs | Optional | ||
| American General Life Insurance | Power 10 Protector Plus Income | 10 yrs | Included | ||
| American Equity | Retirement Gold (Index 02-09) | 10 yrs | Optional | ||
| American Equity | Retirement Gold (INDEX-4-10-FL.3) | 10 yrs | Optional | ||
| Allianz Life Insurance Company | Allianz 222 Annuity | 10 yrs | Included | ||
| Allianz Life Insurance Company | Allianz Benefit Control | 10 yrs | Optional | ||
| Athene IA | Ascent Pro 10 | 10 yrs | Optional | ||
| North American Company | IncomeChoice 10 | 10 yrs | Included | ||
| American Equity | IncomeShield 10 w/ LIBR | 10 yrs | Included | ||
| Integrity Life Insurance Company | Integrity IndextraTM 10 | 10 yrs | Optional | ||
| EquiTrust Life Insurance Company | Market Ten Bonus Index IBR | 10 yrs | Included | ||
| Fidelity & Guaranty Life | Safe Income Plus | 10 yrs | Included | ||
| Athene IA | Ascent Pro 10 Bonus | 10 yrs | Optional | ||
| Athene IA | Ascent Pro 10 Bonus (FL) | 10 yrs | Optional | ||
| Athene IA | Ascent Pro 10 Bonus (State Variations) | 10 yrs | Optional | ||
| Global Atlantic Financial Group | Choice Income II 7 with Income Multiplier Benefit | 7 yrs | Optional | ||
| EquiTrust Life Insurance Company | MarketSeven Index IBR | 7 yrs | Included | ||
| Oxford Life Insurance Company | Select 7 | 7 yrs | Optional | ||
| American Equity Investment Life Insurance Company | California IncomeShield 7 | 7 yrs | Included | ||
| American Equity Investment Life Insurance Company | IncomeShield 7 | 7 yrs | Included | ||
| Protective Life | Protective Income Builder | 7 yrs | Included | ||
| Global Atlantic Financial Group | Choice Income II 7 with Guaranteed Income Builder | 7 yrs | Optional | ||
| Fidelity & Guaranty Life | Prosperity Elite 7 Protection | Included | |||
| Guaranty Income Life | WealthChoice 7 | 7 yrs | Optional | ||
| American General Life Insurance Company | Power 7 Protector Plus Income | 7 yrs | Included | ||
| Athene IA | Agility 7 | 7 yrs | Included | ||
| Integrity Life Insurance Company | Integrity IndextraTM 7 | 7 yrs | Optional |
GLWB Riders vs Immediate Annuities
GLWB Riders have become popular because they allow you to purchase an annuity with guaranteed lifetime income amounts that are known at time of purchase. Historically, income annuities were used for this purpose; however, in today’s interest rate environment a GLWB Rider almost always guarantees a higher lifetime withdrawal amount vs an income annuity.
When you purchase an income annuity and “annuitize” your account value you give up control of your asset and only have guaranteed income payments. A major benefit of a GLWB rider is you maintain control of your asset and have guaranteed lifetime income.
Another benefit is that if your goals or objective for the annuity change over time you still have the account value available as a lump sum. Whereas most income annuities or annuitizations are irreversible decisions. Want to learn more about income annuities?
If for some reason you need extra money in any given year you can withdraw it from your annuity, even with a GLWB rider. This withdrawal reduces your Benefit base “pro-rata”; meaning your guaranteed lifetime withdrawal amounts will be reduced moving forward.
Example: An extra $10,000 withdrawal from an annuity with $130,000 account value and $150,000 benefit base would reduce the benefit base by 7.7% ($10,000 / $130,000 = 7.7%).
Your benefit base used to calculate lifetime withdrawal amount would be $138,450 ($150,000 x 92.3%) moving forward. So instead of getting $7,500 per year (5% x $150,000) the owner would now be guarantee $6,922 annually (5% x $138,450).
Indexed Annuity Buying Tips
Fixed annuities, or MYGAs, are the simplest of all annuities making them the easiest variety to shop for and compare. However, there are still a few important items to consider besides just looking for the highest guaranteed rate of return.
Duration: Typically the longer contract you purchase the higher your guaranteed interest rate will be. But that is not the case, especially given the current inverted yield curve.
Liquidity: Most all fixed annuities have some type of annual free withdrawals, but the amount available varies by product. You’ll see most of the fixed annuities at our marketplace provide interest-only withdrawals annually. Others allow for 10% Free Withdrawals (10% of previous years account value) annually.
Insurer Company’s Financial Rating: An annuity company’s financial ratings are important because they are an indicator of an insurers’ ability to fulfill financial commitments to it’s policyholders. Usually, a lesser rated insurance company will offer higher fixed annuity rates, but that is not always the case.