Comparing Living Benefits: How to Maximize Guaranteed Income and Flexibility
A living benefit is an optional rider on a deferred annuity that provides financial protection or guaranteed income while you’re alive. It’s designed to protect against outliving your money and provide guaranteed income—regardless of how long you live or how the market performs. Living benefits are typically used for retirement income, but they can also provide income for any circumstance.
Living benefits are available on fixed indexed annuities (FIAs), variable annuities, and registered index-linked annuities (RILAs), but we only recommend them on fixed indexed annuities with a guaranteed lifetime withdrawal benefit (GLWB) due to the combination of income certainty, principal protection, and long-term growth potential without market losses.
How It Works
When you purchase a fixed indexed annuity with a GLWB:
- You begin with a benefit base, which is a separate value used only to calculate your income. This is not the same as your account value and cannot be withdrawn as a lump sum.
- The benefit base may grow each year through a guaranteed roll-up or step-up feature, depending on the contract.
- When you’re ready to start taking income, you can withdraw a guaranteed amount for life, based on your age and the benefit base.
- If your account value drops to zero, your guaranteed income continues for life.
- You retain full control of your contract: unused account value goes to your beneficiaries as a lump sum, or your spouse can continue the income stream if spousal continuation is available.
Some riders also include enhanced income for long-term care needs or return-of-premium options.
Types of Living Benefits
Guaranteed Lifetime Withdrawal Benefit (GLWB)
The most common living benefit. It allows you to withdraw a fixed percentage of your benefit base for the rest of your life. You maintain control and avoid annuitization, which we never recommend because it’s irreversible.
Long-Term Care or Confinement Waivers
These provisions increase your income—often doubling it—for a limited period (typically five years) if you’re confined to a nursing home or lose two activities of daily living (ADLs). These waivers are often included at no additional charge.
Return of Premium Waivers
Some contracts allow you to walk away with your original premium after a set number of years, often without surrender charges, even if the annuity didn’t perform well. We recommend searching for this feature if you’re concerned about early exit flexibility.
Terminal Illness and Nursing Home Waivers
Waive surrender charges if you’re diagnosed with a terminal illness or confined to a healthcare facility, allowing you to access your funds without penalty.
How Do You Know You Have the Best Living Benefit?
The only way to know is to compare annuities across multiple insurance companies. Living benefits are not created equal, and the differences can result in tens or even hundreds of thousands of dollars in additional retirement income.
Here’s what to look for:
- Payout Amount: Which GLWB offers the highest guaranteed lifetime income at your target retirement age?
- Roll-Up and Step-Up Options: Does the benefit base grow automatically each year, or is it performance-based?
- Fees vs. Value: Many riders charge a fee (usually 1% or less). Make sure the guaranteed income is worth it. Some no-fee options exist but may offer less certainty.
- Income Type: Does it offer level income, increasing income (e.g., CPI-based), or performance-based income? We prefer level or guaranteed increasing income for predictability.
- Flexibility: Can you stop and restart income? What happens to unused funds? Are there nursing home and terminal illness waivers?
- Carrier Ratings: Stick with A-rated or better companies. Always compare Comdex scores to measure overall strength.
- Funding Type: Make sure the annuity fits your plan whether you’re using IRA funds, Roth IRA, or non-qualified money.
Compare Lifetime Income
Why It’s Important to Compare
Most people don’t realize how much money they leave on the table by buying directly from one insurance company. Living benefit riders vary widely in value and cost. Some payout rates may be 30%–50% higher from one company to the next for the same investment.
That’s why it’s critical to work with a licensed annuity broker who can compare products from dozens of top-rated insurance companies. We’re not tied to any single provider—we work for you, not the insurance company.
Let Us Help You Compare
We specialize in helping you find the highest guaranteed income at the lowest possible cost—customized for your age, income goals, and retirement timeline. Contact us today for a free, no-obligation comparison.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.