One year ago, no fixed annuity offered guaranteed lifetime withdrawal (GLWB) benefits.
Today, over half of the top-selling fixed indexed rate carriers and a couple of the fixed stated rate carriers offer the benefit on at least some of their annuities, and most of the carriers we consult with will be adding the benefit in the future.
Why the growth? GLWBs offer an income that is guaranteed for life–as annuitization can provide. But, unlike annuitization, selecting a GLWB preserves access to account values.
A typical fixed annuity GLWB would provide a 5% lifetime payout to a 65-year-old and a 6% lifetime payout to a 75-year-old. If the account runs out of cash because the payout is greater than the earnings, the carrier guarantees to continue paying the income for life out of its own pocket.
However, the big attraction with a GLWB is, if extra cash is needed or if the recipient dies, the annuity will distribute the account value less any liquidity charges. Further, unlike the annuitization route, the GLWB preserves the hope that the account value could grow while the annuitant is receiving payouts.
That means the customer may be able to both eat retirement cake and have some of it pass on to heirs.
The benefit sounds attractive, but from a purely economic point of view, is it needed on a fixed annuity?