The Unique Value of a Guaranteed Lifetime Income Rider

As retirement approaches, the end of a steady paycheck can bring financial challenges. With rising expenses and the decline of traditional pension plans, many retirees seek solutions to ensure a comfortable future. Fixed index annuities with guaranteed lifetime income riders offer a potential answer, providing a reliable income stream. However, selecting the right option requires careful guidance from experienced advisors.

Ken Orenstein, FRC
  • Written By
    Ken Orenstein, FRC

    Ken Orenstein, FRC

    Federal Retirement Advisor

    Ken Orenstein is a Federal Retirement Advisor and principal advisor for Brokerage Consulting. With expertise in investments, retirement planning, financial planning, Medicare, employee benefits and life insurance, Ken brings a wealth of knowledge and experience to his role. His educational background includes a Bachelor of Science in Management from Kean University. Ken is dedicated to providing personalized and informed advice to his clients, helping them make well-informed decisions to achieve their financial goals.

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  • Edited By
    Michael Santiago
    Headshot of Michael Santiago, senior editor for

    Michael Santiago

    Senior Financial Editor

    Michael Santiago is a skilled writer and editor with over a decade of experience in various industries. As a senior financial editor, he collaborates with a team of experts to develop compelling and accurate content.

    Read More
  • Reviewed By
    John Stevenson, CFF
    John Stevenson, Owner and Advisor at Stevenson Retirement Solutions

    John Stevenson, CFF

    Owner and Advisor at Stevenson Retirement Solutions

    John Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he's ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.

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  • Updated: March 12, 2024
  • 3 min read time

Key Takeaways

  • Retirement income challenges persist beyond the paycheck, necessitating strategic planning.
  • Fixed index annuities with guaranteed lifetime income riders offer potential solutions.
  • Social Security may not suffice as the sole income source in retirement.

One of the foremost challenges individuals encounter when retirement planning is ensuring a steady inflow of funds each month to cover their living expenses. 

Challenges of Retirement Income Sustainability

A sad fact of life is that once the paycheck stops, unfortunately the monthly bills keep coming. The challenge of attaining a comfortable retirement, where retirees don’t have to constantly worry about having enough money every month to cover expenses, along with the fear of depleting their savings entirely, is increasingly daunting. This is compounded by factors like high inflation and unexpected future expenses in retirement, including substantial healthcare costs as we age, given that most people are living longer during retirement than ever before.

Adding to this problem is the fact that most Americans no longer have a pension plan, which would have provided a monthly, structured income for the life of the individual. This often included a smaller lifetime monthly payment available to the surviving spouse upon the pension holder’s death.

The majority of retirees will often have only their monthly Social Security check to depend on, which, for most people, simply will not be adequate as a monthly income.

The Role of Fixed Indexed Annuities

One potential solution to the aforementioned problem, faced by a large number of retirees, is the utilization of a fixed index annuity with a guaranteed lifetime income rider.

Upon retirement, many retirees who have accumulated funds in banking or brokerage accounts, or through employer-sponsored qualified accounts such as 401(k), 403(b), 457 plans or TSP, often choose to use a portion of these accounts to fund a fixed index annuity with a guaranteed lifetime income rider via an IRA rollover.

This rider costs extra, but it provides a guaranteed growth of the income base that is much higher with it than without it. In some annuities, the income base can receive as much as a 35% upfront premium bonus and then can grow compounded for up to 8% per year until the income is activated. Even though this rider has an annual fee, the growth of the benefit base can potentially provide hundreds of thousands more in guaranteed income than would be possible without it.

Activation and Benefits of Guaranteed Lifetime Income Riders

Upon retirement, the individual will elect to activate the guaranteed lifetime income rider, which will provide a guaranteed monthly income stream for the life of the individual or couple, if choosing the joint guaranteed lifetime income option. Certain riders also offer the ability for the monthly income to grow over time, serving as an effective hedge against future inflation. Additionally, some riders may serve as a possible supplement for long-term care expenses, doubling the monthly income during impairment of the annuity holder.

There are numerous factors to consider when selecting the most suitable annuity/income rider product. That’s why it’s imperative for the consumer to consult and work with a qualified, experienced advisor.

Frequently Asked Questions About The Unique Value of a Guaranteed Lifetime Income Rider

What are fixed index annuities with guaranteed lifetime income riders, and how can they help secure retirement income?

Fixed index annuities with guaranteed lifetime income riders are financial products that provide a steady stream of income throughout retirement. They offer a combination of principal protection and potential for growth tied to the performance of an underlying index, with the added benefit of lifetime income guarantees.

Why might Social Security payments alone be insufficient for covering retirement expenses?

Social Security payments may not be enough to cover all retirement expenses due to various factors such as increasing living costs, longer life expectancies, and potential changes to Social Security benefits. Therefore, relying solely on Social Security may leave retirees financially vulnerable.

What factors should individuals consider when deciding whether to use a portion of their retirement savings to fund annuities with lifetime income riders?

When deciding whether to use a portion of retirement savings to fund annuities with lifetime income riders, individuals should consider factors such as their overall retirement goals, risk tolerance, other sources of income, health status and long-term care needs. Consulting with a qualified financial advisor can help evaluate whether such products align with their financial objectives and circumstances.

Activation and Benefits of Guaranteed Lifetime Income Riders

The author drew upon personal experience in basic budgeting, income and retirement planning to craft this article, omitting formal references or footnotes.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: March 12, 2024
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