Rachel Christian, Annuity.org Writer
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    Rachel Christian

    Rachel Christian

    Financial Writer and Certified Educator in Personal Finance

    Rachel Christian is a writer and researcher focusing on important, complex topics surrounding finance and investments. She is a Certified Educator in Personal Finance with FinCert, a division of the Institute for Financial Literacy, and a member of the Association for Financial Counseling & Planning Education (AFCPE).

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    Kim Borwick
    Kim Borwick, Financial Editor for Annuity.org

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

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    George F. Shave III, RICP®
    George Shave, RICP

    George F. Shave III, RICP®

    Retirement Income Certified Professional™ at SFG Annuity Advisors

    George F. Shave III, RICP®, is a principal and founder of SFG Annuity Advisors, a firm founded in 1997 to help consumers and advisors navigate the complex world of annuities. George has served a more than 30-year tenure in the financial services industry.

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  • Updated: May 22, 2023
  • 6 min read time
  • This page features 7 Cited Research Articles
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How to Cite Annuity.org's Article

APA Christian, R. (2023, May 22). Guaranteed Minimum Withdrawal Benefit (GMWB). Annuity.org. Retrieved June 10, 2023, from https://www.annuity.org/annuities/riders/gmwb/

MLA Christian, Rachel. "Guaranteed Minimum Withdrawal Benefit (GMWB)." Annuity.org, 22 May 2023, https://www.annuity.org/annuities/riders/gmwb/.

Chicago Christian, Rachel. "Guaranteed Minimum Withdrawal Benefit (GMWB)." Annuity.org. Last modified May 22, 2023. https://www.annuity.org/annuities/riders/gmwb/.

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Key Takeaways

  • You can add a guaranteed minimum withdrawal benefit rider to mitigate risk when buying an annuity.
  • The GMWB rider protects your annuity’s highest value if the market drops.
  • Typical GMWB rider fees range from 0.5% to 1% per year, but the exact amount will vary depending on the rider’s provisions.

A GMWB rider protects your annuity’s highest value — also known as the “benefit base” or “high-water mark” — during a down market while still allowing underlying investments to grow during an up market.

In this way, a GMWB transfers market- and longevity-related risk from the annuity owner to the insurance company underwriting the guarantee.

Why People Buy GMWB Riders

Variable and fixed-index annuities have attractive growth potential. But they do carry risk. Because the value of underlying investments can fluctuate with the stock market, these annuity payouts may be directly impacted by factors beyond your control.

This isn’t a reassuring thought for consumers seeking a safe income stream for retirement.

A guaranteed minimum withdrawal benefit, like similar income riders, offers protection against this risk. If the market plummets, you can still withdraw a guaranteed percentage of your principal.

GMWBs and other income riders have become popular additions to variable annuity contracts. According to an analysis by the Massachusetts Institute of Technology, 95% of variable annuities now offer some sort of financial guarantee.

The maximum amount you can withdraw each year varies but is usually between 5% and 10% of the original lump-sum principal you paid the insurance company.

Most GMWBs allow you to start, stop, or change your withdrawal amount at any time. But it’s important to note that taking more than the annual guaranteed withdrawal may negatively affect your benefits.

How Does It Work?

To get a better understanding of how a GMWB works, consider this example of a variable annuity with a guaranteed minimum withdrawal benefit.

Let’s say you purchase a $100,000 variable annuity. You agree to a 10-year surrender period and a GMWB rider with a 5% annual withdrawal guarantee.

After 10 years, the markets are in chaos, and your underlying variable annuity investments are now worth only $75,000.

Because you purchased a GMWB rider, you can still withdraw 5%, or $5,000, a year until your original $100,000 investment is recovered.

No matter how much your annuity contract decreases in value as a result of poor market performance, your minimum annual withdrawal is guaranteed at $5,000. Even if the funds are completely depleted, the insurance company will continue to disburse these minimum payments for the rest of your life.

Did You Know?

Some GMWB riders allow you to withdraw amounts of greater value when the market is performing well.

The percentage you can withdraw usually correlates to your age at the time you wish to make the withdrawal. The older you are when you activate the rider, the more money you can take out and still have guaranteed income for life.

For example, your withdrawal benefit may increase to 5.5% between 65 and 69 years old, then 6% at 70 years old and older.

Step-Up Provision

If the subaccounts in your variable annuity’s underlying portfolio perform well some years, your GMWB rider may lock in this new contract value and, subsequently, your minimum withdrawal benefit would be based on the higher figure instead of your original principle.

Let’s think back to our earlier example.

You buy a variable annuity for $100,000 along with a GMWB rider.

During the third year of your contract, the value of your annuity increases to $125,000 — even after your 5% annual withdrawal.

Because market conditions resulted in an increase in the value of your annuity, your GMWB rider now allows you to lock in this new figure by “stepping up” your contract’s benefit base to match your new contract value of $125,000.

From now on, your withdrawal benefit is 5% of $125,000, or $6,500, instead of 5% of $100,000, or $5,000.

Now, let’s assume that during the sixth contract year, the value of your annuity contract jumps to $200,000.

Once again, you can lock in this new, higher value. Your annual withdrawal benefit is now 5% of $200,000 — or $10,000 a year.

In other words, your guaranteed withdrawal percentage remains the same — it’s based on your age at the time the rider is activated — but the actual dollar amount you can take out each year increases if the benefit base increases.

Even if the stock market crashes in year nine and your contract value drops to $75,000 and never returns to that $200,000 high-water mark, the GMWB riders allow you to continue to withdraw 5% of $200,000 each year.

Fees and Additional Costs

GMWBs offer protection against risk as part of a holistic financial strategy, but you will pay for this protection.

If you’re in the market for a variable annuity and are considering adding a GMWB rider, it is essential to examine all associated fees and costs.

A typical GMWB rider fee can range from 0.5 to 1% each year. Other riders, such as a guaranteed minimum income benefit, or GMIB, may cost up to 1.5% a year. The fee will vary depending on the provisions of the rider. Usually, the higher the yearly fee, the larger your guaranteed withdrawal percentage will be.

To enjoy the customizable benefits of variable annuities, you may encounter other costs.

Other Costs and Fees Associated With Variable Annuities

Annuity Account Fees
This fee is usually small and often waived once your contract value exceeds a certain level, such as $50,000.
Surrender Fees
Surrender fees apply only if you take out more than 10% of your contract value at one time. The fee decreases every year you own the annuity until it is eliminated, usually after seven to 10 years.
Mortality and Expense (M&E) Charge
Mortality and Expense charges cover the cost of death benefits or other income guarantees associated with your annuity contract. This charge usually ranges from 0.4% to 1.75% a year.
Underlying Investment Fees
Depending on your variable annuity contract and the funds you choose to invest in, these underlying investment fees can cost 0.25% to 3% a year.

Because annuities are a form of insurance, they may not net returns as high as individual stocks or other investment vehicles. But people buy insurance to safeguard against major threats and damage.

The important question for a retiree to consider is whether potential benefits offered through a GMWB rider are greater than or equal to the cost of the product.

Ask a financial advisor to go over the fine print in any proposed contract until you feel comfortable making a decision.

FAQs About Guaranteed Minimum Withdrawal Benefits (GMWBs)

What is the difference between a guaranteed minimum withdrawal benefit and a guaranteed minimum income benefit?

They are both optional riders with different purposes. A guaranteed minimum withdrawal benefit rider protects your annuity’s highest value if the market drops suddenly and allows you to withdraw a certain amount of funds each year, while a guaranteed minimum income benefit rider — when annuitized — guarantees you will continue to receive payments on schedule, regardless of market conditions. Fees are typically higher for a GMIB compared to a GMWB.

What is an example of how a guaranteed minimum withdrawal benefit pays out?

Let’s say your $100,000 variable annuity drops in value to $75,000 due to a recession or other market event. If you have a 5% annual withdrawal guarantee in your GMWB rider, you can still withdraw up to 5% each year until the market recovers and your variable annuity returns to a $100,000 value.

Is your minimum withdrawal benefit based on your life expectancy?

The percentage you can withdraw typically depends on your age at the time you make a withdrawal. The older you are when you activate the rider, the more money you can take out and still have a steady, lifetime income stream.


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Last Modified: May 22, 2023

7 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Blanchett, D. (n.d.). The Expected Value of a Guaranteed Minimum Withdrawal Benefit (GMWB) Annuity Rider. Retrieved from https://www.semanticscholar.org/paper/The-Expected-Value-of-a-Guaranteed-Minimum-Benefit-Eickelberg/6868f405511a12110b16a447b08d16300c6a2fc8?p2df
  2. Goodman, B. & Tanenbaum, S. (2008, April). The 5% Guaranteed Minimum Withdrawal Benefit: Paying Something For Nothing? Retrieved from https://www.tiaainstitute.org/sites/default/files/presentations/2017-02/5percent-gmwb-goodman-tanenbaum.pdf
  3. Liu, Y. (2008, August). Guaranteed Minimum Withdrawal Benefit in Variable Annuities. Retrieved from https://www.soa.org/globalassets/assets/files/static-pages/research/arch/2007/arch07v41n1_xix.pdf
  4. Ontario Securities Commission. (2021, August 24). Guaranteed minimum withdrawal benefit (GMWB) products. Retrieved from https://www.getsmarteraboutmoney.ca/invest/investment-products/complex-investments/guaranteed-minimum-withdrawal-benefit-gmwb-products/
  5. Rae, D. (2019, July 1). The Six Variable Annuity Fees You Need To Know About. Retrieved from https://www.forbes.com/sites/davidrae/2019/07/01/variable-annuity-fees/#118f4bba7de2
  6. Reish, F. (2020, January 14). SECURE Act and Guaranteed Income (Part 2). Retrieved from https://www.natlawreview.com/article/secure-act-and-guaranteed-income-part-2
  7. Shah, P. & Bertsimas, D. (2010, September 29). An Analysis of the Guaranteed Withdrawal Benefits for Life Option. Retrieved from http://www.mit.edu/~dbertsim/papers/Finance/An%20Analysis%20of%20the%20Guaranteed%20Withdrawal%20Benefits%20for%20Life%20Option.pdf