For many, retirement can be the expense of a lifetime. The average total cost of a retirement exceeds that of the average college education, expense of raising a child, and the cost of a home, combined.1Perhaps for this reason, the Indexed Annuity Leadership Council, reports that the biggest fears facing 50 percent of Americans are outliving their income and the inability to maintain their current lifestyle.2
As a result, baby boomers, faced with longer retirements, funded by limited, unpredictable income sources, are turning to safe money alternatives in retirement. As insurance products, fixed index annuities offer options that help ensure retirement income regardless of stock market volatility.
A fixed index annuity allows the owner to convert a lump sum amount into a series of annuity payments, either for the owner’s life or for a specified period of time. However, once these annuity payments start, the payments are generally locked-in, meaning the owner cannot change the amount of any payment. In an effort to allow owners to receive the benefit of a guaranteed stream of income payments, while still maintaining flexibility and control over their money, many insurance companies now offer income riders, which can be added to a fixed index annuity.
Of course, everyone’s retirement income needs are different and assessing those demands will help determine what fixed index annuity and income rider best suit your needs. Below we cover key income rider features to consider when making lifelong income product decisions.
Income Rider Accumulation Period
If an income rider is elected, typically for an annual fee, or sometimes no fee, owners are able to secure growth potential and income stability. With an income rider, there is usually a period during which interest accumulates. Based on the product and the option selected, interest may accumulate on a simple or a compound basis. Interest typically continues to accrue for the time period stated in the rider or until the owner chooses to receive income payments.
Rider Fees Are Important
When it comes to income riders, different carriers apply fees in different ways. Fees may also vary by product. It’s important to understand what fee is being charged for the rider as well as how the fee is calculated and how the fee is paid.
Income Rider Payout Options
With many income riders, you maintain control of the principal, and have flexibility for how the benefits are paid out. Some income riders also provide increased payment options for health-related costs. The qualifications and availability for increased payout vary by carrier and by product.
Speak with Your Financial Professional
Retirement is often one of the biggest financial decisions a person can make. As the responsibility for retirement planning continues to shift from employer to employee, these are decisions more pre-retirees are having to make. For many, there are few guaranteed vehicles better suited for today’s retirement landscape than a fixed index annuity with an income rider. Speak with your financial professional to see how these options can work for you.