In the annuity world, a
rider is an optional add-on that enhances the benefits, protections, or guarantees in your annuity contract. Riders allow you to customize your annuity to better fit your individual needs or address specific retirement income concerns.
Below are some of the most popular and valuable riders to consider when choosing an annuity.
Guaranteed Lifetime Withdrawal Benefit (GLWB)
Available on many variable and fixed-index annuities, the
Guaranteed Lifetime Withdrawal Benefit (GLWB) rider provides the ability to withdraw a set percentage of your investment each year for as long as you live—even if the annuity’s contract value is reduced to zero.
If you choose a
joint and survivor option, the income stream can continue for as long as either you or your spouse or partner is alive. Keep in mind that the annual payout is typically lower with this option than it is for a single individual.
This rider is often appealing for those considering a variable annuity but who also want the security of a lifetime income they cannot outlive. Guaranteed withdrawal percentages generally increase with age, with rates commonly ranging from
3% to 5% of your initial premium.
While you may see similar riders—such as Guaranteed Minimum Withdrawal Benefits or Guaranteed Minimum Income Benefits—the GLWB is usually the most flexible and preferred option.
Long-Term Care Protection
A long-term care (LTC) rider allows you to withdraw funds from your annuity to cover long-term care expenses without surrender charges or other penalties.
This can be especially important if you need care in a nursing home, assisted living facility, hospice, or another long-term care setting. An annuity with this rider can serve as a source of emergency funds if you don’t qualify for traditional long-term care insurance or need coverage during a policy’s elimination period.
Enhanced Death Benefits
An enhanced death benefit rider helps increase or guarantee a minimum amount that will be paid to your beneficiaries when you pass away.
If you need dependable retirement income but are concerned about leaving money to your heirs, this rider may help address both goals. No medical exam is required, and even individuals who have been declined for life insurance may still qualify.
Most insurance carriers do require a waiting period before this benefit becomes effective, so timing is an important consideration.
Inflation Protection
Inflation can significantly reduce the purchasing power of a fixed retirement income over time. An inflation or cost-of-living rider helps address this risk by allowing your annuity income to increase automatically based on the terms of the contract.
While you may start with a lower income payment in the early years of retirement, this rider can help preserve your income’s value over the long term.
A Final Word
Annuity riders are not free. They typically come at the cost of lower initial income or added fees. However, for many individuals, the added protection, flexibility, and risk reduction make these riders well worth the expense.
