The question of the quarter: Which indexed annuity Guaranteed Lifetime Withdrawal Benefit (GLWB) is best?
Being a disinterested third party who does not endorse any company or product, I am often quoted responding to such inquiries with “that depends.”
Although I will not shout-out specific company or product names, there are some basic guidelines that you need to be aware of when determining which GLWB is best for your clients with a need for a guaranteed income stream. The most important determinant in selecting the most appropriate income rider for your client is whether the rider performs better when the guaranteed lifetime income is turned on now versus later.
Many insurance professionals think that GLWBs are of no use if the annuitant wants to begin taking lifetime income immediately. Not so. In fact, there are 17 different indexed annuities that are specifically designed to perform better when lifetime income commences within the first four years of the contract. How can you identify these products? They usually offer a very large bonus, which is credited only to the Benefit Base of the GLWB. Remember: These bonuses are never available should the annuitant decide to cash surrender. Although these bonuses can be as low as 1 percent, there are currently annuities offering GLWB Benefit Base bonuses as high as 45 percent.
Most advisors familiar with Guaranteed Lifetime Withdrawal Benefits think that they are designed to incentivize the annuitant to defer income commencement. Why wouldn’t they? After all, 162 of the indexed annuities available today offer an attractive feature that is useless if the client doesn’t defer. I am talking about rollups, folks. Most GLWBs offer competitive rollups that guarantee an annual increase in the Benefit Base value, as long as the annuity is kept in deferral. Such rollups today range anywhere from 4 percent to 14 percent annually, and may use simple interest or compounding. Rollups are typically guaranteed for an initial 10-year period, should the annuitant defer income that long. But many annuities allow the opportunity to continue receiving the rollup for 20 years or longer, should the annuitant decide to delay income even further.
Ultimately, I would advise that you not sell an indexed annuity with a big GLWB Benefit Base bonus to someone who isn’t going to begin receiving income payments within the first few years. Likewise, I would advise that you not sell an indexed annuity with a competitive GLWB rollup to someone who is going to start their guaranteed income stream right off the bat. Understanding how your favorite indexed annuity GLWB performs can ensure that your client won’t have to pay rider charges for benefits that they won’t necessarily benefit from.