Best Variable Annuity Income Riders

Hi, Stan The Annuity Man. Today's topic is Best Variable Annuity Income Riders. We're going to cover all the Variable Annuity Income Rider types, and I'll also blend in some Fixed Index Annuity Income Rider types. At the end of the day, when you're searching for Income Riders, you're broadly searching for the highest contractual guarantee. By the end of this blog, you'll understand them backward and forward.

So, we're talking about Variable Annuity Income Riders. Disclaimer: Stan The Annuity Man does not sell Variable Annuities because I only sell contractual guarantees. I'm a "will-do," not "might-do" person. However, I do understand Income Riders and have written a book about them, including Variable Annuity Income Riders. I know this topic backward and forward.

Today, we'll discuss what a Variable Annuity is, the types of Income Riders that can be attached to it, their benefits and limitations, how to quote them, and where they fit into your portfolio. At the very end, if you stick with me, I'll tell you how to get my book on Income Riders for free.

What is a Variable Annuity?

They’ve been around since about 1955, when they were first introduced for tax-deferred market growth. It sounds good because it is good. Variable Annuities are securities, meaning you need a securities license or equivalent to sell them. Inside a Variable Annuity, there are mutual funds referred to as separate accounts that serve as the growth portion of the product. You choose these mutual funds, aiming for solid growth. Used outside of an IRA in a non-IRA account, this growth compounds tax-deferred, which is why Variable Annuities were created in the first place.

Income Riders

What is an Income Rider attached to a Variable Annuity? A Variable Annuity can stand alone without an Income Rider, but you can attach one at the time of application. An Income Rider is a future benefit, a guarantee for lifetime income that starts on a date you choose. Income Riders are commodity-type products and can be attached to Variable Annuities or Fixed Index Annuities. At the end of the day, my "will-do, not might-do" philosophy focuses on contractual guarantees. The "will-do" part is the Income Rider, which solves for future income. It’s essentially a flexible future pension plan that you attach to the policy at application.

How Does It Work?

How does a Variable Annuity or Fixed Index Annuity Income Rider work? Picture a blank sheet of paper divided into two sections. On one side is the investment portion—for Variable Annuities, this includes mutual funds (separate accounts), and for Fixed Index Annuities, it’s the index option strategy. On the other side is the Income Benefit Rider portion. These two components grow separately. With Income Riders, growth during deferral years is typically a set percentage. Once you turn on the income stream, that growth percentage stops. However, you’ll know the exact guaranteed income stream amount, even 7, 10, or 12 years into the future.

Types of Variable Annuity Income Riders

Variable Annuities generally have four primary Income Rider types:

1. Guaranteed Minimum Accumulation Benefit (GMAB)
2. Guaranteed Lifetime Withdrawal Benefit (GLWB)
3. Guaranteed Minimum Income Benefit (GMIB)
4. Guaranteed Minimum Withdrawal Benefit (GMWB)

If all these "G's" feel overwhelming, just remember they stand for "guarantee." Each works differently and is designed to provide future income guarantees. My book dives into the details of how each type functions.

Benefits of Income Riders

The benefits of Income Riders are straightforward. They provide future income, structured as a contract. You know the exact payment amount, whether it's for your life, joint life with a spouse, or structured to ensure 100% of the money goes to your beneficiaries if you pass away early. Income Riders offer flexibility: you don’t have to use them, and some allow you to start and stop income as needed. When you tell me what you want your money to do and when you want those guarantees to start, I’ll shop the market for the highest contractual guarantee from every carrier.

Some Income Riders also provide death benefits or confinement care benefits, but all of them transfer the risk of lifetime income to the annuity company. Essentially, it’s a pension you can never outlive.

Limitations of Income Riders

Now, let’s address the limitations of Income Riders. These are not yield-based. The income calculation is solely used to determine your payment when you start the income stream—it’s not money you can withdraw, transfer, or cash out. Additionally, Income Rider fees come from the accumulation value and last the life of the policy. Some limitations stem from misleading sales pitches. Promised rates like 8% or 7% are not yield—they’re calculation rates. Be smarter than the sales pitch; if it sounds too good to be true, it always is.

Where Do Income Riders Fit in Your Portfolio?

Structuring and quoting Income Riders is simple. Whether for your life or joint life, let me know what you want, and I’ll quote all carriers to find the best option. Think of it like booking a plane ticket—it's about finding the highest contractual guarantee with the most reputable carrier.

Three main areas they fit in your portfolio:

1. Future income: Provides a guaranteed pension benefit for life.
2. Legacy: Some Income Riders include a death benefit component.
3. Confinement care: Speeds up payments or enhances them if you qualify for care benefits.

As I mentioned earlier, you can download my book on Income Riders for free. It goes into the weeds, explaining each type in detail. Thank you for joining me today. See you next time!

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.