Joint Income Up $4,200/yr: A Rider Activation Audit (Henry & Carol, 68 & 66)
Henry and Carol came to us as a couple – 68 and 66 – with a Fixed Indexed Annuity they had bought together about seven years ago when they were 61 and 59. The contract included a joint income rider they hadn’t turned on yet. Now Carol was about to step out of part-time consulting and Henry had already retired. They wanted to flip the income switch. The question was whether the rider they bought in 2019 was still the best instrument for the job.
The audit found that activating their existing rider would generate $13,260/yr of guaranteed joint lifetime income. By 1035 exchanging the same $325,400 into a newer FIA with a current-generation joint income rider, that number jumped to $17,490/yr – an extra $4,230 per year, for as long as either one of them lived.
- Client
- Henry & Carol, ages 68 & 66
- Contract Type
- Qualified Fixed Indexed Annuity (IRA)
- Account Value
- $325,400
- Years Held
- 7 years (out of surrender)
- Income Rider
- Joint GLWB – not yet activated
- Current Annual Rider Fee
- 1.10% of benefit base
The “Locked-In Roll-Up” Problem
When Henry and Carol bought the contract, it offered a 7% guaranteed roll-up on the rider’s benefit base for the first 10 years. That sounded great in 2019, and it was – their benefit base had grown nicely. But the payout factors built into older contracts were typically conservative. When the carrier set their joint lifetime withdrawal percentage at age 68, the table they used produced a 4.4% factor.
Today, the same insurance carrier (and several of its competitors) has refreshed its FIA lineup with rider factors that have risen meaningfully alongside interest rates. A current product at the same joint ages offers withdrawal factors in the 5.4%-5.8% range. That’s the gap the audit was built to measure.
What Their Contract Actually Looks Like
| Annuity Type | Qualified Fixed Indexed Annuity (IRA money) |
|---|---|
| Issue Date | 7 years ago |
| Surrender Period | Just completed – no surrender charge |
| Account Value | $325,400 |
| Benefit Base (rider value) | $301,500 |
| Joint Lifetime Withdrawal Factor at Ages 68/66 | 4.40% |
| Annual Income if Activated Today | $13,266 |
| Annual Rider Fee | 1.10% on benefit base ≈ $3,317/yr |
Activating the rider locks in $13,266/yr for both of their lives. That doesn’t go down if the market drops. But once activated, it doesn’t really go up either – the joint factor is set the day income begins. Henry and Carol were about to lock in a number permanently. The audit was designed to make sure they locked in the right number.
Three Paths Forward
All three options used the same $325,400 of IRA money, sized for a 68-year-old male and 66-year-old female joint life annuitant pair.
Annual joint lifetime income side-by-side
Why the New FIA Won This Audit
The joint SPIA produced the highest absolute number. So why didn’t we recommend it?
Three reasons specific to this couple:
- Liquidity matters to them. Carol’s mother is 91 and may need long-term-care help within the next few years. Even a small chance of needing a chunk of capital made the SPIA’s full-annuitization structure a bad fit. The FIA preserves the account value and gives them annual penalty-free withdrawal access on top of the rider income.
- The income gap closes. The SPIA pays $660/yr more than the new FIA. Over a joint life expectancy of ~24 years, that is roughly $16,000 of extra income. Meaningful, but not enough to give up account-value liquidity.
- Heirs. If both spouses pass earlier than expected, the FIA’s remaining account value goes to their two adult children. The SPIA’s cash refund only returns unrecovered premium.
The 7-year-old contract was activated. Then it was replaced. The benefit base had grown nicely, but the rider factor it would lock in was simply behind the current market.
The Surrender Question
The trade-off with any 1035 exchange is the new surrender schedule. Henry and Carol agreed to a 10-year surrender period on the new contract, knowing they planned to take only the rider income and the 10% annual free withdrawal for the foreseeable future. Neither of those triggers surrender charges. The schedule would be a real cost only if they needed to fully cash out the contract before year 10 – a scenario neither of them anticipates.
What the audit revealed
The rider Henry and Carol bought in 2019 had done exactly what it was designed to do – it grew a benefit base while interest rates rose. But the payout factor it locked in was based on a 2019 actuarial table, not a 2026 one. The current generation of FIA income riders offered roughly $4,200/yr more for the rest of both their lives, on the same money, with full liquidity preserved.
The right answer was not “your old contract failed.” It was “your old contract built a benefit base. Now let a newer contract deliver it.”
What This Means If You Have a Similar Contract
FIA income riders bought in the 2017-2020 window often have this dynamic. Three things tend to be true:
- Your benefit base has grown thanks to the roll-up, which is good.
- Your payout factor is older-generation, which means the dollar income you would actually receive is below what current riders produce.
- You’re at or near the end of your surrender period, which means a 1035 exchange to a current-generation rider is on the table.
The audit compares your existing rider’s projected income against current-market alternatives at your exact age – single life, joint life, or for couples. Request your free audit here.
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Request my free auditAbout this case study. The client featured here is anonymized — name changed and some details adjusted for privacy. Account values, fee percentages, and income figures reflect actual audit outcomes for clients with similar contracts. Individual results will vary depending on contract specifics, carrier, current market rates, and client goals.
Before considering exchanging one annuity contract for another, all aspects of the exchange should be considered, including but not limited to cost, guaranteed interest rates, surrender charges, rider costs, possible rating changes, and different features and benefits of the two contracts. A 1035 exchange must be carefully evaluated for tax and contractual implications. Annuities are long-term investments designed for retirement planning. Withdrawals prior to age 59½ may result in a 10 percent federal tax penalty, in addition to any ordinary income tax. The guarantee of the annuity is backed by the claims-paying ability of the issuing insurance company.
Variable annuities are securities under federal law and may be considered securities under state law. If a variable or registered annuity is part of an audit, securities-related services are provided through First Palladium, LLC, Member FINRA. Past audit outcomes are not a guarantee of future results.
