Which Annuity Company Has the Best Income Riders?
Annuity income riders are optional benefits that can be attached to many variable annuities and fixed index annuities for a fee. They add contractually guaranteed lifetime income benefits to deferred annuities providing flexibility for accumulation and distribution. These types of annuity income riders have become very popular we are often asked what guaranteed income rider is the best.
My answer has always been it depends on a lot of different variables, the age at which you purchase the annuity and how long you wait to begin taking your income payments.
I realize that is never the answer anyone is looking for so we’ve compiled a Top 20 List of The Best Guaranteed Lifetime income Riders for one of the scenarios we see most often.
The below list of income riders and payout assumes 60-year-old purchases the annuity income rider and begins single lifetime income payments at age 65. While the order of the list will be slightly different for each unique scenario, in general, these are the 20 best income riders available for a fixed index annuity.
The Top 20 Annuity Income Riders
|INCOME RIDER||A.M. BEST||ANNUAL FEE||INCOME|
|Ameritas Flexmark MyFit Income Rider with Booster||A||1.05% annually||$6,802
|Protective Level Income 15 (Defer bonus)||A+||1.2% annually||$6,683|
|Protective Level Income Rider||A+||1% annually||$6,650|
Nationwide High Point 365 w/Bonus
|American National Lifetime Income Rider||A||1% annually||$6,371|
|NWL Income Outlook Plus 5 NH||A||1.5% annually||$6,318|
|Transamerica Income Plus||A||1.15% annually||$6,390|
|NWL Income Outlook Plus 5 Rider||A||1.5% annually||$6,318|
|Symetra Signature Plus GLWB Rider||A||1.25% annually||$6,311|
|Symetra Signature GLWB Rider||A||1.1% annually||$6,311|
|Global Atlantic |
Advisory Guaranteed Income Builder Benefit
|Allianz Index Advantage Income Benefit - Level||A+||0.7% annually||$6,250|
|AIG Lifetime Income Max||A||1% annually||$6,161|
|NWL Income Outlook NH||A||1% annually||$6,030|
New Heights 10 High Point 365
|Athene Ascent Pro 10 Income Rider - Level||A||1% annually||$5,913
|AIG Lifetime Income Plus Flex||A||1.1% annually||$5,805|
|Midland Summit Income Strategy Level||A+||1.05% annually||$5,871|
|Athene Ascent Pro 7 Income Rider - Level||A||1% annually||$5,840
|AIG Power Series Lifetime Income Plus Flex||A||1% annually||$5,794
| Securian Financial |
Achiever Lifetime Income Rider
Disclosure: These numbers were effective at the time this was written, November 28, 2020, and are not a guarantee nor an offer for sale. We’ve compiled this list for educational purposes and highly recommend that you consult a tax, legal, and/ or legal consultant prior to purchasing an annuity or making any major financial decision. My Annuity Store, Inc., or any of its advisors, do not provide tax or legal advice. There were higher payouts available at certain insurance companies; however, we’ve excluded an insurer who did not hold an A.M. Best Rating of at least an A.
Are Income Riders a Good Investment?
Annuity income riders are not an investment they are a type of insurance product. When you purchase a lifetime annuity income rider you are buying income insurance; insurance that you will not outlive your income, regardless of how old you live to be.
When creating retirement income plans we do calculate an anticipated Rate of Return (ROR) on guaranteed income riders assuming a life expectancy based the Social Security Life Expectancy Tables and hereditary/ lifestyle information gathered from my clients.
However, it is impossible to determine an exact rate of return as none of us know exactly how long we will live.
Everyone should have enough guaranteed lifetime income to cover essential living expenses and ideally cover highly desired and important discretionary expenses if an individuals portfolio is such that it is feasible to do so.
The alternative to an annuity income rider would be an income annuity, and that option requires that you give up control of the asset in exchange for a guaranteed lifetime income stream. This is not as flexible but there are instances where my clients or I think it is best they don’t have the flexibility of making additional withdrawals above the guaranteed lifetime income amount as they reduce future lifetime income payments.
While annuity income riders are not an investment and can’t be evaluated in the same ROR terms as you may be used to, they are in my eyes, a great option for a portion of a retirement income portfolio. There is much intrinsic peace of mind and mental health benefits in knowing you have a paycheck to cover essential needs for as long as you live regardless of market fluctuations.
When the time comes we should all be out living our dream retirement – not worried about outliving our money.
Income riders can be expensive and should be entered into with caution. I would not recommend anyone add an income rider to their annuity contract unless they are fairly confident they’ll utilize its income benefit.
You may hear annuity income riders referred to by a number of different names:
- Guaranteed Lifetime Withdrawal Benefit Riders (GLWB)
- Guaranteed Minimum Income Benefit Riders (GMIB)
- Lifetime income riders
- Guaranteed Lifetime Income Benefit Riders
- Lifetime Withdrawal Benefits
- Lifetime Income Benefit Riders (LIBR)
Guaranteed vs. Performance-Based Income Riders
There are two primary types of lifetime income riders, guaranteed and performance-based.
Guaranteed lifetime income riders guarantee you an annual income amount to begin at some point in the future. With guaranteed income riders you will know exactly what your lifetime income benefit will be when you purchase it.
An annuity with an added income rider has two separate values; an account value and a benefit base value. It is important to know that the income value is not available as a lump-sum ever, it is only used to calculate your guaranteed lifetime income amount. Your account value is the actual “cash value” of your annuity.
How Do Annuity Income Riders Work?
There are two components that determine what your guaranteed lifetime annual income will be:
1. Roll-Up Rate: Amount your benefit base is guaranteed to increase each year you defer turning on income.
2. Payout Percent: The percentage of your benefit base you will receive as annual lifetime income payments.
Annuity Income Rider Calculation: Benefit Base x Payout Percent = Annual Income Payments
Annuity Income Rider Example
Let us assume an income rider has a 10% simple roll-up rate and a 5% payout rate at age 65, and that the payout percent increases 10 basis points each year you defer thereafter.
A $100,000 investment by a 60-year-old today would have a benefit base of $150,000 in 5 years at their attained age of 65. Using the assumptions above should income be turned on at age 65 the annual income amount would be $7,500 ($150,000 x 5%). Should income be turned on at age 65 annual income would be $160,000 x 5.10% = $8,160.
Performance-Based Income Riders
When you purchase a performance-based annuity income annuity rider you will not know exactly what your guaranteed lifetime annual income will be. These types of income riders still have the two separate account values; however, the benefit base value is not guaranteed to roll-up by a set percentage each year. Instead, the benefit base is given a stated enhancement.
Remember, income riders can be added to fixed index annuities and variable annuities. With these types of annuities, what you earn each year is not known rather it is determined by the performance of a market index. Performance-based income riders will credit an additional amount to your benefit base in the years in which you earn interest.
For example, a performance-based rider may credit 150% of interest that you earn each year to your benefit base. The years in which your account value does not earn any interest your benefit base would not increase.
Typically, the reason an individual would go with a performance-based rider vs a guaranteed income rider is the potential for their annual income payments may be higher.
If your $100,000 annuity earned $10,000 in the first year and the income rider had a 50% benefit base enhancement your account value would be $110,000 after year 1 and your benefit base would be $115,000.
Additional Options and Features of Annuity Income Riders
Joint Life vs Single Life
When purchasing a guaranteed lifetime income benefit rider, you have the option of guaranteed income payments for as long as you are alive or for as long as either you or your spouse are alive.
As you may expect, the guaranteed income amount is less for joint lives. Some guaranteed income riders reduce the payout percent by 50 basis points for joint life while others reduce it by a full percent.
Because of this, the income rider that is best for a 67-year-old beginning income at age 70 may not be the best for a 67-year-old couple beginning income at age 70.
Increasing Income Options:
Some income riders allow you to get pay increases after you turn on income. Selecting the increasing income option usually means your payout percent is reduced by a stated amount resulting in a lower initial annual income. Each year you have an opportunity for a pay increase based on how your account value performed the previous year.
One common way you will see this being done is if your account value is credited 5% your income also increases by 5 percent.
Long Term Care Enhancements:
Long Term Care Enhancements have become much more popular over the past 2 years. An income rider with this feature will double your annual income amount should you be confined to a nursing home facility. Some insurance companies will also allow the LTC Enhancement to be used for in-home health care should the owner not be able to complete 2 out of the 6 activities of daily living.
Pros and Cons of Annuity Income Riders
The primary benefits of a guaranteed lifetime income rider include:
- You transfer longevity risk to the insurance company
- Peace of mind knowing you cannot outlive your money
- Potential to invest the remainder of the portfolio more aggressively because the sequence of returns risk less important when you aren’t taking withdrawals
- More flexibility that than the other lifetime income option, annuitization, which is irrevocable in most cases
- Death Benefit may be passed to heir if you have a remaining account value at death.
- You have to pay for the income rider whether you use it or not
- They can be complicated and difficult to understand the separate values so it is very important to know exactly what you are purchasing.
- Income Riders are fairly expensive which is a strain on your account value’s growth.
The Financial Industry Regulatory Authority (FINRA) created a “Your Guide to Annuities: An Introduction” for consumers that we would recommend reading if you are considering adding an annuity to your retirement portfolio.
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