The Income Rider: Today’s Pension Plan.

Shawn Plummer

CEO, The Annuity Expert

A guaranteed lifetime income rider is a type of insurance policy that provides you with a steady income for the rest of your life. This can be a great way to ensure a comfortable retirement without worrying about running out of money. This guide will discuss the benefits of adding a guaranteed lifetime income rider to your insurance plan. We will also explore how it works and how much it costs.

What Is A Guaranteed Lifetime Income Rider Or Guaranteed Lifetime Withdrawal Benefit?

The annuity income rider is an optional benefit that functions like a pension in that the rider will distribute a guaranteed income for life to a retiree. The income rider is typically an optional feature on fixed indexed and variable annuities and serves as an alternative to annuitization.

The income rider, also known as the Guaranteed Lifetime Withdrawal Benefit (GLWB), guarantees to distribute the annuity owner a retirement income paycheck until the day they die, even after the annuity has run out of money. Utilizing the income rider helps to automate managing and budgeting money in retirement.

While the policy owner receives retirement income from the income rider, the annuity still earns interest.

Unlike a pension, a policy owner can choose to stop and restart the payments or may be able to withdraw additional money from the deferred annuity.

How Does An Income Rider On An Annuity Work?

The income rider is an optional “enhancement” that can be attached to a deferred annuity. Thus, the income rider’s benefits vary from one GLWB annuity contract to another.

An income rider’s primary purpose is to distribute a paycheck during retirement for the rest of the annuity owner’s life. That said, generating the highest income is the primary goal.

Who Is An Income Rider Designed For?

  • Pre-Retirees want to understand when and how much money they need to retire.
  • Pre-Retirees want to figure out how much they need to save today for their future retirement income.
  • Seniors worried about outliving their savings.
  • Americans want to know how to generate income in retirement.
  • Retirees want to know the best ways to withdraw money from their 401k and IRA.

Income Rider Types

There are two distinct types of lifetime income riders: guaranteed and performance-based income riders.

Guaranteed Income Riders

Guaranteed riders guarantee what your retirement checks will be today or tomorrow by growing at a fixed interest rate (roll-up percentage) each year. The guaranteed lifetime income amount won’t go up or down. It is a fixed income amount for the rest of your life.

Performance-Based Income Rider

Performance-based riders offer a retirement income based on how well the policy performs (with a guaranteed floor) until the owner is ready to start their income stream. The idea is that you have the potential to earn a higher annual withdrawal amount than a guaranteed rider would provide. You can get an idea of the annual withdrawal amount based on product illustrations, but you won’t know for sure. It’s a gamble.

Regardless of performance, there is always a guaranteed floor of how much future retirement income you can generate. The variable isn’t about how much income you can lose in this scenario but how much you can obtain in the future.

Income Rider Names

Income riders are a general term for the optional annuity benefit and have many names, including:

  • Guaranteed Lifetime Income Annuity
  • Guaranteed Minimum Income Benefit Annuity
  • Guaranteed Life Income Annuity
  • Income Benefit
  • Living Benefit Rider Annuity
  • Lifetime Income Benefit
  • Lifetime Withdrawal Benefit
  • Lifetime Income Rider
  • Guaranteed Minimum Withdrawal Benefit
  • Guaranteed Lifetime Withdrawal Benefit
  • Guaranteed Living Benefit
  • Withdrawal Benefit
  • Enhanced Withdrawal Benefit
  • Guaranteed Minimum Accumulation Benefit
  • Guaranteed Retirement Income Benefit
  • Guaranteed Income Benefit
  • Guaranteed Lifetime Income Benefit

Income Rider Payout Types

  • Single Life:  Distributes a fixed income for the remainder of one covered person’s life.
  • Joint Life:  Distributes a fixed income for the remainder of the owner’s and the surviving spouse’s life. The income amount will not change.

Death Benefit Options on Lifetime Income Riders

What happens to the annuity when I die? Designated beneficiaries will receive a death benefit based on the following scenarios:

Single Life Payouts

If you choose a single-life payout, the death benefit will be:

  • The Accumulation or Account Value in a lump sum.
  • Spousal Continuation:  A spousal benefit provision allows the spouse to continue the contract after the contract holder dies. A new annual income amount will be recalculated based on the remaining income values and the surviving spouse’s age at the time of death.
  • Some annuities offer an Enhanced Death Benefit as well. This can be used as a life insurance alternative.

Joint Life Payouts

If you select a joint-life payout, the death benefit will be:

  • Continue receiving the same income amount if there is a surviving spouse.
  • Inherit the Accumulation or Account Value in a lump sum.

Consider Life Insurance Instead

If you want to leave money to your beneficiaries without them having to pay taxes on it, life insurance might be a better option for you. In some cases, you don’t need to take a medical examination. Compare life insurance quotes to find affordable coverage. Coverage starts at $9.37 per month.

Pros and Cons of Income Riders

The Pros

  • Income riders generate a fixed and predictable income in retirement.
  • You can not outlive the income if you utilize a guaranteed withdrawal benefit.
  • Income riders can cover a single-life or joint lives (You + Spouse).
  • They are flexible in turning the income on and off or walking away.
  • You can know today what your guaranteed income will be in the future.
  • You can map out your retirement income goals today and plan how to achieve them for tomorrow.
  • Some benefits enhance to assist with eldercare, estate planning, and inflation.

The Cons

  • Single Payouts can take between 15 and 20 years of distribution before you tap into the insurance company’s money. 
  • It’s even longer for a joint payout.
  • You’re getting your money paid back to you with the hope you will live longer than 15 years.
  • You have to elect up front regardless of whether you use the feature.
  • Most guaranteed withdrawals are fixed, meaning your income paychecks may not increase over time to help with inflation.
  • Fees can be expensive, especially with variable annuities.

Additional Enhanced Features

  • Income riders can be built-in at no additional cost to you.
  • Some riders offer the opportunity to increase your retirement income to keep up with inflation.
  • Income riders can offer enhanced liquidity making your savings more accessible to you.
  • Often riders double their income for eldercare, such as long-term care, nursing home, and home health care. These enhanced features shouldn’t be used as a long-term care insurance alternative. This is called a long-term care rider, or living needs rider.
  • Finally, some riders provide an enhanced death benefit as a life insurance alternative. This means the fictitious value becomes real.

Income Riders Vs. Annuitization

Most annuities can provide an income for life in two distinct ways: annuitization and lifetime income rider. Below is a table that compares the advantages and disadvantages of both.

AnnuitizationIncome Riders
May offer higher payoutsFlexibility to start/stop income
Tax favored withdrawals on nonqualified annuitiesPotential to step up the income amount
No additional costCosts up to 1.25% of account value annually
Irrevocable paymentsFuture income can be guaranteed today
It cannot be surrenderedCan be surrendered
Minimal ROIEarns interests
No liquidityRegular liquidity
No death benefit or series of paymentsLump-Sum Death Benefit
Can not help with healthcare costsCan help long-term care costs

Next Steps

If you are looking for a way to ensure a guaranteed retirement income, an annuity with an income rider may be the answer. This optional benefit can provide payments that will last as long as you do. Many riders also offer the opportunity to increase your payments over time to keep up with inflation.

Use our income for life annuity calculator to estimate how much income you can receive throughout retirement. Then, request a quote today to determine how much income an income rider could provide you in retirement.

What Is A Guaranteed Lifetime Income Rider Or Guaranteed Lifetime Withdrawal Benefit In Annuities?

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Frequently Asked Questions

What is a level annuity?

A level annuity pays you the same amount of regular income from the start of your retirement until the end of any guarantee period or until you die.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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