Wither the three-legged stool? The pension plans that represent one leg of the venerable retirement income model are going the way of the $2 bill, while Social Security, another leg of the stool, is wobbly at best. It’s no wonder, then, that the buzz in the annuity world is about optional features that guarantee a lifetime income stream: living benefit riders.
Here’s a look at three of the most intriguing developments on the annuity rider front:
- The emergence of hybrid death benefit/living benefit guarantees. Last year, for example, the Phoenix Cos. introduced a rider called the Enhanced Guaranteed Income and Family Wealth Transfer Benefit (Enhanced G.I.F.T. Benefit), which combines guaranteed lifetime withdrawals with an enhanced death benefit for one charge. It provides a strong death benefit guarantee for wealth transfer and a guaranteed income stream for life.
- More robust GMWB step-up provisions. A lifetime GMWB unveiled recently by Ohio National offers an 8 percent simple-interest step-up, while Jackson National’s Lifeguard Freedom Flex GMWB allows investors to choose a step-up amount between 5 percent and 8 percent for 10 years, with the fee adjusted accordingly. The Income Maximizer Plus rider available on Sun Life’s Financial Masters’ variable annuities includes an inflation hedge feature that increases the contract-holder’s withdrawal benefit base (and lifetime income) by 2.5 percent (compounding interest) every year after the person begins taking lifetime income.
- More long-term care options. Despite getting more favorable tax treatment starting last year, the pickings still are slim when it comes to annuity riders. However, Lincoln National’s rider pays a monthly amount for long-term care expenses up to three times the initial purchase amount, which must range from $50,000 to $400,000. The benefit costs 0.87 percent to 1.71 percent, depending on the options chosen, and is capped at $1.6 million, covers a single life and applies only to non-qualified assets.
Next week: two more new trends in annuity riders you should know about.
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David Port is a Denver-based freelance writer and a frequent contributor to Senior Market Advisor. He owns and operates his own writing and editing business, Southpaw Print/Net Communications.