Guaranteed income riders turn an ordinary annuity into an emergency fund. Here's how - and why you should be talking to your clients about them.
Having a financial planning conversation can be a challenge for producers. Consumers often either think they don't need help, or don't understand the tools that can help them most. This includes annuity add-ons like a guaranteed income rider (GIR), often ignored because consumers assume it’s too expensive. It's not - and it can be a great way to access cash in an emergency.
What Is a Guaranteed Income Rider?
In the past, to get a guaranteed income stream, a consumer had to purchase a single premium immediate annuity (SPIA). They gave a lump sum premium to an insurance company; in exchange, they received a guaranteed monthly payment starting at a later date. Unfortunately, consumers had no access to that cash in the meantime. Once the annuity started paying out, they didn't have access to sums larger than their monthly payments.
Guaranteed income riders remove that limitation.
With a GIR attached to an annuity, consumers can access their cash value, even if they've already started a lifetime income stream. Not only that, but the cash value in the policy also continues to earn interest annually. In comparison, that same individual would get penalized for touching the funds in a CD if removed early.
Here’s an example.
Scenario: Benjamin Pierce wants to start a guaranteed income stream.
At 60 years old, Mr. Pierce puts $100,000 into an annuity and adds a guaranteed income rider (for an additional fee in some cases). He lets the annuity mature, and the income rider value grows for 10 years without being touched. Now the income rider value has reached $180,000.
Calculated based on his age when he triggers the income stream and the value of the income rider, Pierce would receive, say, $9,900 every year (varies by carrier).
The longer Pierce chooses to hold off on starting the income stream, the more he will receive annually.
Let’s say Pierce waits until 75 to trigger his payments. Now he receives $11,463 annually. If he annuitized at 65, that number would be more like $7,000.
Now let’s say he decides not to annuitize yet, but he needs $20,000 in cash. With the safety of index annuities, he knows he'll never have less than his initial premium of $100,000. So he's able to withdraw the $20,000 he needs. The income rider will still be attached to the policy and the withdrawal only reduces the guaranteed lifetime payment.
The Importance of an Income Rider
An annuity without a rider is much like a savings account.
Mr. Pierce can take money out, but once it’s all gone, it’s gone for good. If he annuitizes (with no rider in place), he’ll have monthly payments spread out, but he won’t have the ability to take out a lump sum for emergencies.
Guaranteed income riders promise a supplemental retirement income and access to funds.
They’re an incredibly savvy and safe move.
More than likely, your client may only hear the words “there may be additional fee.” Some do not actually require additional fees. However, if there is a fee, it is typically nominal.
At the end of the day, a minimal payment for this kind of lifetime security is worth the peace of mind.
Talking Income Riders with Clients
You’ve learned the essentials of the guaranteed income rider. You’ve seen an example of a GIR in action.
We’ve also identified a good first step:
Peace of mind and financial protection > minimal additional cost of rider.
Clients are looking for safe alternatives for retirement income. The necessity for this income to remain intact for the duration of life (read: never run out) in order for clients to remain financially independent has become paramount. An annuity can provide guaranteed income for life. The income rider lends that extra boost of protection, allowing access to funds.
The conversation just got a whole lot easier.
“Would you like to guarantee a steady stream of retirement income that will never run out?”
“Would you also like access to the funds you’ve built in case of emergency?”
“Let’s talk guaranteed income riders.”
For more information on the guaranteed income rider or other rider options—accelerated benefits, accidental death benefit, cost of living, disability income, guaranteed insurability, long-term care, payor, return of premium, term, or waiver of premium—contact us at (800) 832-4852 x8778 or by e-mail your Brokerage Director.