A guaranteed lifetime withdrawal benefit (GLWB) addresses two major retirement plan concerns: covering all living expenses in retirement, and having a guaranteed income stream for life, even if your investments underperform.
Typically, you add a GLWB rider onto a variable annuity for a fee.
Read on to learn about GLWBs, and the options for you in retirement.
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How does a GLWB work?
GLWB riders provide guaranteed income in retirement without concern over market fluctuations. Even if your account balance drops to zero, your insurance company will make payments to you for life. This guarantee usually assumes that you are not taking withdrawals outside of your GLWB income as excess withdrawals may limit this guarantee.
Here are the key elements of a GLWB rider.
Income benefit base
Initially, the income benefit base is equal to your first premium payment. If you purchase an annuity with a minimum contribution of $50,000, your income benefit base starts at $50,000. The income benefit base doesn’t represent the cash value of your annuity, and usually isn’t available as a death benefit or withdrawal, rather, it’s the number your insurer uses to calculate your lifetime income.
Withdrawal percentage
The withdrawal percentage is a fixed rate that calculates your minimum guaranteed income when you start taking withdrawals. Insurers determine your withdrawal percentage based on your age: The older you are, the higher your withdrawal percentage.
For illustrative purposes, a 60-year-old with an income benefit base of $100,000 might have a withdrawal percentage of 5%, resulting in an annual withdrawal amount of $5,000 ($100,000 x 5% = $5,000). An 80-year old with the same income benefit might receive a withdrawal percentage of 8%, generating guaranteed annual income of $8,000.
Market growth and income base adjustments
This can vary by insurer, but in some cases, conributing additional money to your annuity increases your income benefit base. Some annuities with GLWB riders offer features where market performance can impact your base. For example, some insurance companies set a rate, say 5%, and increase your income benefit base by that amount on your contract anniversary for a fixed period. Any market growth beyond 5% gets added as well.
With many GLWB riders, your insurer won’t add market growth beyond a fixed percentage to your income benefit base. They add it to your account value, but it is not used to calculate your withdrawal percentage.
Some GLWB riders include a step-up feature, which, at certain intervals, compares your account’s cash value to the value used to determine your minimum guaranteed withdrawal. If your cash value is greater, your insurer subsequently applies the withdrawal percentage to the current, higher value, which increases your minimum guaranteed withdrawals. GLWB riders might also include a roll-up option. The roll-up add-on usually comes with a fee but increases your income benefit base by a fixed percentage annually if you delay your payout start date.
3 advantages of a GLWB for retirement income
Here are some of the ways GLWB riders address common retiree concerns.
1. Lifetime income protection
A focal point of any retirement plan is having enough money to cover your expenses once you stop working. GLWB riders give retirees the certainty that no matter what happens in the market, they won’t outlive their savings. Instead, they’ll enjoy a guaranteed income stream for life.
2. Market participation with downside protection
GLWB riders let you take the concern out of the market as they can provide stability in terms of a guaranteed income you cannot outlive.3. Flexible access to funds
Some annuities with GLWB protection have flexible withdrawal rules, letting you access money beyond your lifetime guarantee. However, this option could reduce your annual income payouts or have tax consequences depending on your other income streams.
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How to choose the right GLWB annuity
When you purchase an annuity, consider the bigger picture of commissions, fees, and other hidden charges. The type of annuity matters, as does the insurance company that backs your investment. All Gainbridge annuities come with no hidden fees.
Comparing variable annuity guarantees
When evaluating GLWB riders, keep in mind the difference between your income benefit base and actual account value, especially with deferred variable annuities. Your insurance company guarantees lifetime income using the income benefit base, even if your account balance drops to zero.
However, guaranteed income in retirement might not offset market-related losses. Remember that, as with any investment, there are risks.
Evaluating annuity providers
Evaluate annuity providers' transparency when considering a variable annuity with a GLWB rider. Read the fine print, and ask questions like:
- Do they explain the difference between the income benefit base and account value?
- Do they disclose fees and restrictions associated with step-up and roll-up options?
- What are the fees and expenses and how does this impact growth?
If you’re unsure of the terms, talk to a financial advisor, or ask for further information.
Financial stability
Check ratings from agencies such as A.M. Best, Moody’s, and Standard & Poors. For example, A.M. Best gave Gainbridge annuities an A- (Excellent) rating based on their financial strength.
Payout flexibility
Look for annuity companies that offer flexibility if your situation changes. This includes early or additional withdrawals, or the ability to increase your guaranteed minimum accumulation benefit in retirement by adding new money or market gains to your income benefit base.
Plan your retirement with Gainbridge today
Gainbridge makes retirement planning easier with our range of annuity products and easy-to-use platform. We take out the middle-man, so you can shop for and purchase annuities at your own pace — with no hidden or administrative fees.
Take control of your future and get started with Gainbridge today.
Gainbridge Insurance Agency, LLC, is a Delaware limited liability company (“Gainbridge”), is a digital platform and wholly-owned subsidiary of Group 1001 Insurance Holdings, LLC (Group 1001) and affiliated with Gainbridge Life Insurance Company.
Annuities are issued by Gainbridge Life Insurance Company, a Delaware-domiciled insurance company with its principal office in Zionsville, Indiana and is licensed and authorized to do business in 49 states (all states except New York) and the District of Columbia. Products and/or features may not be available in all states. Guarantees are based on the financial strength and claims paying ability of the issuing insurance company.
A.M. Best Company assigns ratings from A++ to S based on a company's financial strength and ability to meet obligations to contract holders. A- (Excellent) is the 4th highest of 16 ratings. Visit www.ambest.com. Ratings are current as of [Date] and subject to change
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