guaranteed lifetime withdrawal benefit annuity rider€¦ · benefit annuity rider fixed-index...
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Bode Financial Group, LtdThomas Bode, CPA/PFS®, CFP®4061 North Main StreetSuite 250Racine, WI 53402262-898-7300cli[email protected]://bodefinancialgroup.com/
Guaranteed Lifetime WithdrawalBenefit Annuity RiderFixed-index annuities (also referred to asequity-indexed annuities) and variable annuities canbe useful options for retirement savings becauseinterest earnings are tax-deferred until withdrawn.These annuities can also be converted to a stream ofincome payments that can last for the rest of your life(annuitization). However, annuitization generallyrequires that you exchange your annuity accountbalance for income payments. Due to growingdemand for additional income options, many issuersare offering a rider, called a guaranteed lifetimewithdrawal benefit (GLWB), to variable annuities andfixed-index annuities that allows you to get lifetimeincome payments while continuing to have access tothe annuity's remaining cash value.
Here's how it worksThere are different variations of the GLWB rider,depending on the issuer offering it, and typically aGLWB option subjects the annuity owner to specificage restrictions or income limitations, depending onthe specific optional benefit offered with a particularannuity. However, most issuers incorporate somecommon features. Your annuity premium is investedin subaccounts (with a variable annuity) or earnsinterest (with a fixed-index annuity). Thereafter, youcan elect to receive annual withdrawals from theannuity that last for the rest of your life (minimumguaranteed withdrawal). The amount of thewithdrawal is determined by applying a percentage(withdrawal percentage) to the premium or the cashvalue, whichever is greater at the time of yourelection. Withdrawals are subtracted from the cashvalue. The amount of the withdrawal will notdecrease, even if the cash value decreases or isexhausted. In addition, you continue to control theinvestment of the remaining cash value within theannuity, and have access to it.
For example, you invest $100,000 in a variableannuity with a withdrawal percentage of 5%. In fiveyears, you elect to begin receiving minimumguaranteed withdrawals, but the cash value is worthonly $80,000 (due to poor subaccount performance).
The withdrawal percentage (5%) is applied to yourpremium ($100,000) since it is greater than the cashvalue at the time of your election. Your minimumguaranteed withdrawal is $5,000 per year ($100,000 x5%).*
Some issuers apply a minimum rate of return to yourpremium (minimum income value) apart from yourcash value. In this case, the withdrawal percentage isapplied to the greater of your minimum income valueor your cash value to determine your guaranteedminimum withdrawal. This option ensures that theamount of your minimum guaranteed withdrawalincreases each year you defer receiving withdrawals.
To illustrate, use the same facts as the previousexample, but include a minimum income value of 6%per year applied to your premium ($100,000). Whenyou elect to receive withdrawals, the minimum incomevalue is $133,823 ($100,000 x 6% per year x 5years). Since this value is greater than your cashvalue ($80,000), the withdrawal percentage (5%) isapplied to the minimum income value yielding aminimum guaranteed withdrawal of $6,691 per year($133,823 x 5%).*
*Examples are for illustration purposes only and donot reflect the actual performance of a specificproduct or investment.
Issuers may also increase your guaranteed minimumwithdrawal by increasing the withdrawal percentageas the age at which you elect to begin receivingwithdrawals increases. For example, the withdrawalpercentage could be 5% if you start withdrawals atage 55, 7% at age 70, and 8% at age 80.
However, if you exceed the allowable withdrawalamount, you may adversely affect your ability tocontinue receiving guaranteed income payments.Consequently, you should carefully evaluate yourspecific financial needs and objectives in addition tothe specific restrictions and limitations of a GLWBoption.
Annuity guarantees,including guaranteesassociated with benefitriders, are based on theclaims-paying ability ofthe annuity issuer.Annuity withdrawalsmade prior to age 59½may be subject to a 10%federal tax penalty.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015
IMPORTANT DISCLOSURESRegistered Principal, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. InvestmentAdvisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Bode FinancialGroup, Ltd. are not affiliated.
Content provided by Broadridge Investor Communication Solutions, Inc. Broadridge Investor Communication Solutions, Inc. does notprovide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extentthat this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoidingpenalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individualcircumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believedto be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any timeand without notice.
The step-up featureIt's possible the GLWB payments can increase overtime if the issuer includes a step-up feature with therider. At certain intervals (e.g., once a year), theissuer compares the annuity's current cash value tothe value used to determine your minimumguaranteed withdrawal. If the current value is greater,the issuer applies the withdrawal percentage to thecurrent, higher value, thus increasing your minimumguaranteed withdrawals.
Say your minimum guaranteed withdrawals are$7,500 per year, based on a withdrawal percentage of5% applied to the annuity's cash value of $150,000.Five years later, the annuity's cash value increases to$160,000. The new minimum guaranteed withdrawalis $8,000 per year due to the increased cash value($160,000 x 5% per year). The new minimumguaranteed withdrawal will not decrease, even if theannuity's cash value later decreases, or is exhausted.
Access to the cash valueMost issuers allow you to take money from your cashvalue, even if you are also receiving GLWBwithdrawals. However, some issuers reducesubsequent GLWB withdrawals in proportion to theamount you take from the cash value. For example,you have a cash value of $100,000 and yourguaranteed withdrawals are $5,000 per year. Oneyear you withdraw an additional 10% ($10,000) fromthe cash value. Correspondingly, your later GLWBpayments will be reduced by 10% to $4,500.
Death benefitUnless altered by a death benefit provision or rider,annuities with the GLWB rider usually pay a deathbenefit equal to the greater of the remaining cashvalue, or the remaining premium, if any, lesswithdrawals and applicable surrender charges.Generally, GLWB withdrawals are available only tothe annuity owner and not his/her beneficiaries,unless the beneficiary is the owner's survivingspouse, in which case the withdrawals may becontinued for the benefit of the spouse.
GLWB costsSome issuers charge an annual fee for the GLWBrider, usually ranging from.1% to 1.0% or more of theannuity's cash value. Also, the step-up featureassociated with a GLWB may subject the annuityowner to an increased cost in addition to the regular
fee charged for GLWB option. Thus, you shouldconsider this fact when evaluating such a feature.Review annuity sales materials, the prospectus, andthe contract for information on charges and fees.Some other living benefit ridersThe GLWB is one of many living benefit ridersavailable on some annuities that provides a minimumaccumulation value or income. As with most annuityriders, they may differ depending on the issueroffering them. Also, since these benefits are offeredas riders, there is usually a charge associated witheach one.
Guaranteed minimum paymentsbenefitThe guaranteed minimum payments benefit allowsyou to recover your total premium through annualpayments from your annuity, even if the cash value isless than the premium due to poor marketperformance (and not withdrawals).
Guaranteed minimum income benefitThe guaranteed minimum income benefit pays aminimum yearly income even if your annuitydecreases in value due to poor subaccountperformance. But you must own the annuity for aminimum number of years before exercising the rider,and you must exchange the cash value of the annuityin return for the minimum payments (annuitization).
Guaranteed accumulation benefitThis rider guarantees the return of your premium (lesswithdrawals) regardless of the actual investmentperformance of your annuity subaccounts at the endof a stated period of time.
Is it right for you?The GLWB rider can be a good idea if you want afixed income but don't like the idea of giving upaccess to your money that annuitization requires.However, like all deferred annuities, they are intendedas long-term investments, suitable for retirementfunding. The annuity's cash value may be subject tomarket fluctuations and investment risk. In addition,GLWB withdrawals are subtracted from the annuity'scash value.
A note about variableannuities
Variable annuities arelong-term investmentssuitable for retirementfunding and are subject tomarket fluctuations andinvestment risk, includingthe possibility of loss ofprincipal. Variable annuitiescontain fees and chargesincluding, but not limited tomortality and expense riskcharges, sales andsurrender (early withdrawal)charges, administrative feesand charges for optionalbenefits and riders.
Variable annuities are soldby prospectus, whichcontains information aboutthe variable annuity,including a description ofapplicable fees andcharges. These include, butare not limited to, mortalityand expense risk charges,sales and surrendercharges, administrativefees, and charges foroptional benefits and riders.The prospectus can beobtained from the insurancecompany offering thevariable annuity or fromyour financial professional.Read it carefully before youinvest.
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