What Is a Guaranteed Lifetime Wit🌟h𒆙drawal Benefit (GLWB)?

A guaranteed lifetime withdrawal benefit (GLWB) is a rider to a 澳洲幸运5官方开奖结果体彩网:variable annuity that provides a minimum payout level, even if market losses reduce the cash value of your contꦕract. 🧔Most of these riders also allow you to make withdrawals from your cash value as needed. You typically pay for the GLWB rider with annual fees that can vary based on the issuer.

Understanding GLWBs

An annuity is a contract between the purchaser and the issuer. The purchaser makes a one-time lump sum payment or regular payments to the issuer. In exchange, the issuer makes periodic payments to the 澳洲幸运5官方开奖结果体彩网:annuitant for the remainder of their life or for a specific number of years. Sometimes the benefits continue after 🦋the annuitant has died, typically for a surviving spouse.

If you buy a 澳洲幸运5官方开奖结果体彩网:fixed annuity, the issuer pays a 澳洲幸运5官方开奖结果体彩网:fixed interest rate on the money you’ve paid. With a variable annuity, on the other hand, 澳洲幸运5官方开奖结果体彩网:you can invest in the market through subacco෴unts. This feature offers 🍌greater growth potential, but a🐓lso subjects you to potential losses. A GLWB is a way to mitigate that risk.

The GLWB rider🌞 ensures that you receive a minimum lifetime payment that essentially counteracts any losses i🎉n your subaccounts. Most issuers also allow you to make additional withdrawals from your cash value; however, these typically reduce the guaranteed withdrawal amount.

How GLWB Riders Work

Variable annuities have a cash value that’s equal to the premiums you have paid plus or minus any market returns. With a GLWB rider, however, the 澳洲幸运5官方开奖结果体彩网:annuity contract has a separate benefit base—sometimes called a withdrawal base—tꦉhat is used to calculate lifetime withdrawals.

Once you elect to receive your income stream, this benefit base is used to determine the amount of your minimum guaranteed withdrawal. Depending on the terms of the contract and your age, a certain percentage is applied to the benefit base to determine your guaranteed annual payment. It is usually determined by your age at the start of 澳洲幸运5官方开奖结果体彩网:annuitization.

Here💖’s an example: If you are 65 when🅷 you make your first withdrawal, your contract might stipulate a 5% withdrawal rate, whereas if you start receiving payouts at 70, your stipulated rate might be higher—say, 5.25%.

A key feature of GLWB riders is that your withdrawal amount is based on either the benefit base or the cash value, whichever is higher when you start receiving guaranteed payments. For example, say you invested $50,000 in premiums and have a withdrawal rate🧔 of 5%, but your cash value is only $35,000 when you elect to annuitize, due to poor market performance. The issuer would take the higher of these two amounts, your benefit base of $50,000, to calculate the guaranteed minimum withdrawals. This means you would receive $2,500 per year ($50,000 🌸× 0.05 withdrawal rate).

GLWB riders may also allow you to make additional withdrawals from your cash value, even during the 澳洲幸运5官方开奖结果体彩网:annuitization phase. However, doing so usually results in a reduction of your benefit base.

For example, a withdrawal of 20% of your cash value would lead to a 20% decrea📖se in the guaranteed minimum payments for the remainder of y🥂our life. In the example above, such a withdrawal would decrease the GLWB payment to $2,000 ($40,000 × 0.05 withdrawal rate).

Potential GLWB Features

Some GLWB riders come wit👍h additional ▨benefits that can potentially increase the amount of your guaranteed withdrawal. The issuer may charge an additional fee or roll it into the fee for the rider itself. Among the more common examples are:

Minimum Rate of Return

The insurer may offer a minimum rate of return to your benefit base. The withdrawal amount is based on the higher of your benefit base (plus minimum return) or the cash value.

Suppose, for example, that you paid $50,000 in premiums but had a guaranteed 4% rate of return, regardless of market conditions. In two years, that bꦬase would go up to $54,080 (add $2,000 after the first year, then $2,080 after the second year).

If the cash value remained at $50,000, the issuer would use the benefit base to calculate the lifetime payments. Assuming a 5% withdrawal percentage, you would receive annual payouts of $2,704 ($54,080 × 0.05 withdrawal rate).

Step-Up Feature

If the rider has a step-up feature, the insurer will periodically compare the current cash value in the account with the amount initially used to determine the GLWB. If the cash balance is higher, it will adjust the benefit accordingly.

Suppose, for instance, that the original withdrawal amount was based on a benefit base of $50,000, with a 5% withdrawal rate. That made the original gဣuaranteed withdrawal $2,500 per year. However, if the cash balance five years later is now $60,000, then the 5% withdrawal rate would be applied to that higher amount. Thus, going forward, you would receive $3,000 per year ($60,000 × 0.05 withdrawal rate).

Pros and Cons of a GLWB

The primary benefit of a GLWB rider is that it safeguards you from the possibility of receiving a lower lifetime payout if the market takes a hit. In addition, the rider allows you to access your cash value if you need it, which you cannot do with a traditional annuity because it ties up the money you put into the contract once annuitization begins.

The downside, of course, is the additional cost of purchasing this protection. Those who start paying into the annuity well before they annuitize have a lower exposure to market risk as it is—that is, they have more time for the stocks and bonds in their subaccounts to recover. Therefore, customers with a longer 澳洲幸运5官方开奖结果体彩网:time horizon may want to avoid the extra fee๊ that comes with a GLWB rider.

The Bottom Line

A guaranteed lifetime withdrawal benefit (GLWB) is a rider on a variable annuity that allows withdrawals from the account without penaltiꦡes. It also ensures that you receive a certain minimum payment, regardless of market performance. However, these ben🧸efits come at a cost.