• Harry N. Stout

The Top 10 Reasons Income Riders have Continuing Appeal with Consumers


Fixed annuity income riders have grown in popularity and innovation during the past decade. These riders have helped to improve retirement income security for the majority of their purchasers. As I always comment, please work with a qualified financial professional to assess the cost and benefits to you of adding an income rider to a fixed annuity contract.


Here are my top 10 reasons fixed annuity income riders have seen such continuing appeal with consumers.


10. Protection Against Longevity Risk

The retirement landscape is constantly evolving and when planning for the years ahead, many factors need to be taken into consideration. For instance, with advances in medicine, people are living longer than ever in this country. This can lengthen the time spent in retirement, putting significant strain on retirement savings by forcing those dollars to last as long as possible. Income riders have shown they can provide guaranteed lifetime income to help offset the risk of outliving savings in retirement.


9. Combating Cost Inflation in Retirement

Older individuals can also be affected by what is known as “senior inflation.” This is where prices for items consumed by seniors have experienced more inflation than the official consumer price index. One example is the cost of health care. It is just one of the costs that can significantly increase in retirement. Costs can vary widely depending on your health as you age and where they live. Most all of today’s income riders have roll-up rates that can create increased guaranteed lifetime payouts that can help combat the impact of rising costs.


8. Helping to Reduce the Retirement Income Gap

The proportion of pre-retirement income needed to maintain one's standard of living in retirement varies according to individual circumstances. Lower-income workers typically need a higher replacement ratio than average-income workers because they spend a higher proportion of their income on necessities such as food, clothing, housing, transportation, and medical care. Higher-income workers, too, may need higher replacement ratios to maintain their pre-retirement standard of living, especially if their retirement plans include substantial spending on recreation and leisure activities. For some households, a replacement ratio of 65 percent may be adequate, while others may require a replacement ratio of 90 percent or more to maintain their desired standard of living.


Add on the rising senior costs in retirement and an income gap may be created. When daily essentials cost more, retirees have less to spend on the things they enjoy. And with earlier retirements and longer lives than planned, they may have less money that needs to go further. Income riders can provide the guaranteed flow of income to help close the retirement income gap.


7. Fixed Annuity Income Riders are an Innovative Retirement Income Solution

Fixed annuity income riders were developed to supplement retirement income sources. They are an effective, innovative solution that addresses the risks of longevity, rising health care expenses, cost inflation, and unplanned circumstances. The basic benefits of fixed annuity income riders can help you have guaranteed income for life.


6. An Alternative to Common Traditional Retirement Income Strategies

When it comes to creating retirement income, clients have many options. Some of the common traditional strategies include bank certificates of deposit (CDs), stocks and real estate. Many retirees put their assets into products that are not subject to market risks, such as CDs. Their strategy is to live off the interest but leave their principal intact. Some potential pitfalls with this approach are that CDs are not designed to provide long-term income and current interest rates are low, which can make it difficult to live solely off the interest.

Other clients may choose stocks, wanting potential market value appreciation and capital gains. Unfortunately, there is no safety of principal, nor is the income predictable or reliable.

Real estate can also be an option, offering advantages, but it also does not provide reliable retirement income and there is no lifetime guarantee of market value, rate of return or payout.


These strategies may meet certain client’s needs, but if one of their needs is guaranteed lifetime income, fixed annuity income riders may be more appropriate.


5. Continued Innovation Year in and Year Out

The life insurance industry has continued to reinvent and add new benefits to these riders each year. Recently, we have seen carriers add special income enhancements to create additional income amounts if the consumer has a long-term care event and needs additional income to pay for the costs of such events.


4. The Ability to Customize Fixed Annuities

When a client adds an optional income rider, for an additional cost, they can help add certainty to their future income and prepare for unpredictable events. Income riders can provide guaranteed, ongoing retirement income. Income withdrawals can be turned on when planned, or earlier if desired. In short, your clients control when income is taken.


3. Creates a Flexible Product Solution for Retirement and Financial Planning

A fixed annuity with an optional income rider can be a powerful combination, creating a flexible retirement planning tool designed to optimize guaranteed retirement income. Fixed annuities are long-term retirement vehicles designed for future planning, but can offer withdrawal options before a client retires as well if needs change.


2. The Income Rider’s Benefit Base Creates Guaranteed Growth

The majority of income riders credit growth to the benefit base on an annual basis. There are some carriers that credit the optional income rider’s growth to the benefit base daily, potentially optimizing the guaranteed retirement income for clients. And since the future is unpredictable, this guaranteed growth feature for income riders provides a very strong consumer benefit.


1. You Have Better Piece of Mind

As we have seen in this article fixed annuity income riders have many features and benefits that can be very valuable. With people living longer and the time spent in retirement increasing for some individuals, a solution is necessary to create additional retirement income security, protection and flexibility. Income riders can offer a guaranteed paycheck for life, an amount you can count on each year for the rest of your life. These are on top of the basic benefits of a fixed annuity, with the tax deferred growth potential available, allowing you to have more assets to supplement their retirement income and to control how that asset is used.


A fixed annuity with an income rider can help a you close that retirement income gap and maintain your standard of living once you retire. All of these benefits together can help provide peace of mind by creating a guaranteed lifetime income while allowing a you to maintain control over their money for life’s uncertainties.


Summary

Annuity income riders are a key option available on most all of today’s deferred fixed annuity products for an additional annual charge. The rider is designed to provide the contract owner with control over the amount, timing and duration of the income stream the annuity provides. They are a key consideration in why annuity products are purchased today. As always, please work with your qualified financial professional before making the purchase of an annuity product.


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