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Retirement Planning > Retirement Investing

Annuity riders add flexibility to retirement income planning

By Russell Wiltgen

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A retirement income planning strategy can help to ensure that your clients’ assets last as long as their retirement. As financial representatives, you are already aware that wise planning can help make retirement dreams become reality.

But are you aware that variable annuity products with living benefit riders can be part of the strategy? They can help your clients generate the additional retirement income they need to achieve their retirement dreams.

Forget what you knew about annuities ten years ago. According to Spectrem Group, April 2008, “Advisors views on annuities are dated thanks to the addition of riders, which add more options for investors that didn’t exist in years past.” Spectrem also states that “57 percent of advisors do not include annuities as part of the strategy to provide retirement income.” Maybe they just don’t know what they’re missing.

There are several types of optional riders now available on some variable annuities. This article will focus on two riders that are currently being utilized in the financial industry: Guaranteed Lifetime Withdrawal Benefit (GLWB) riders and No Withdrawal Charge (“C-Share”) riders.

Annuity income your clients can’t outlive
As flexible retirement vehicles, some variable annuities offer optional living benefits, such as GLWB riders, that can help protect your clients’ retirement assets from market downturns and potentially eliminate the risk of outliving their income (Guarantees are based upon the claims-paying ability of the issuing company and do not apply to the investment performance or account value of the underlying variable portfolios.). Think of it as income your clients can’t outlive.

GLWB riders are designed to allow your clients to take withdrawals after a certain age and continue for their lifetime, regardless of market downturns. When your clients purchase a variable annuity with a GLWB rider, they may have an option to focus on accumulation until they decide to start taking withdrawals, or to take immediate withdrawals. Withdrawals of policy earnings are taxable and, if taken prior to age 591/2, a 10 percent penalty tax may also apply. When they have this option, they control how to use the GLWB rider to fit their retirement strategy. A few GLWB riders may also allow your clients to choose when to activate and begin paying for the rider at any time after a certain age. Be sure you compare variable annuities with GLWB riders before recommending them to your clients since not all GLWB riders offer the same features.

GLWB riders are gaining favor among financial representatives. Among the respondents in a Spectrem Group survey, April 2008, 39 percent say they recommend either a Principal Protection Rider or a Guaranteed Lifetime Withdrawal Benefit Rider more than 50 percent of the time.

No withdrawal charges
Many GLWB riders are available on variable annuities with withdrawal charges. However, a few companies are offering No Withdrawal Charge riders along with GLWB riders. The “C-Share” rider removes the withdrawal charges for an additional charge. When transferring a client’s 401(k) or non-qualified funds with no withdrawal charges into an annuity, this rider will remove the typical withdrawal charges.

Emerging trends
Many GLWB riders currently guarantee that a fixed percentage of the Premium Accumulation Value, typically four to five percent, can be withdrawn annually, after a certain age, for the annuitant’s lifetime. There’s an emerging trend in the marketplace to offer higher percentages to be credited to the Premium Accumulation Value during accumulation. There are different ways to calculate what that percentage should be, such as doubling the initial premium within a certain number of years or changing the interest rate credited to the Premium Accumulation Value. Another trend is to allow the Premium Accumulation Value to be “reset,” thus locking in any gains. As the need for long-term care increases, GLWB riders may see changes that focus on lifetime withdrawals and methods for calculating the lifetime withdrawals.

Is an annuity right for your clients?
Of course, you will need to determine if an annuity is right for your clients. An annuity can be an integral part of your clients’ immediate or long-term retirement planning strategy, providing direction to help your clients overcome unnecessary risks and providing important optional benefits to help protect your clients’ financial future. Some annuities can work well with your clients’ goal of investing for long-term retirement. And some can provide a unique combination of death benefit and income guarantees not offered by other investment vehicles. Variable annuities continue to offer professionally managed investment options, guaranteed death benefits, tax-deferred savings and payment options to help meet your clients’ needs.

Russell J. Wiltgen, FSA, MAAA is vice president – individual product management with UNIFI Companies. For more information about the UNIFI Companies, please visit www.UNIFIcompanies.com.

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