Over the last decade, the variable annuity industry has enhanced offers of annuity payment options for guaranteed income streams, such as advanced withdrawal plans and annuitization options which can be altered after they begin. Nevertheless, perhaps the most enticing characteristic for the risk-averse owner of a stream of annuity payments is the guaranteed minimum income benefit (GMIB) rider. This particular rider allows owners of variable annuity policies to receive a guaranteed stream of annuity payments, regardless of how the underlying sub-accounts perform.
Before the advent of the GMIB riders, variable annuity investors who opted to annuitize might receive a disappointing level of annuity payments if the markets performed poorly. The annuity payments were entirely dependant upon the current value of a policy or contract, which naturally was determined by the growth (or perhaps lack thereof) in the subaccounts. Therefore, people whose subaccounts had done well might expect to receive larger annuity payments, while those with variable annuity contracts as well as policies had seen less beneficial results would obviously acquire less.
Now, it is possible to know the minimal annuity payment you will receive regardless of marketplace performance using the GMIB rider. Thus, with this rider you should invest boldy (e.g. select the ambitious growth sub-accounts). If your selection works well, your account value expands. If your selection does not succeed, you have the GMIB rider to guarantee your annuity payments. This strategy may not be suitable for all investors. For details and the recommendation on a variable annuity with a GMIB participant, talk to an experienced financial advisor who can show you several policies. Note that GMIB which guarantees a minimum overall performance has a cost and this cost is different from annuity company to company.
Variable annuities should be considered long term opportunities. Such investments are be subject to commissions and surrender fees and your prospectus should be read carefully just before investing. This is not a solicitation of supply to purchase any particular variable annuity and this sort of offer can be made only through prospectus. Withdrawals prior to age 59½ are be subject to 10% penalty. Earning withdrawals are taxed as ordinary income. GMIB riders incur additional charges. Additionally, GMIB riders will have constraints such as minimum required holding periods and in return, guarantee a minimum level of annuity payments. Guarantees offered which has a variable annuity are subject to the claims-paying capability of the underlying annuity company.
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