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An Annuity Income Rider is not an actual stand-alone annuity product. It is an attached benefit to a deferred annuity policy that provides a contractually guaranteed lifetime income stream that starts at a future date you choose. The income will pay for the rest of your life regardless of how long you live.
Like all annuity lifetime income products, Income Riders solve for “longevity risk”...which is the fear of outliving your money. Annuities/Income Riders have a monopoly on lifetime income because it is the only product type that contractually guarantees those lifetime payments.
Life insurance companies issue annuities and the attached benefit Income Riders. Most of today’s annuity riders are attached to Fixed Indexed Annuities, but they can also be attached to Variable Annuities. You do not have to attach in Income Rider to a policy, but you make that choice at the time of application.
Below are some key Income Rider features and benefits:
*Flexible...You can choose when the income starts
*Efficiently used for Target Date or Income Later Planning
*Can be structured Joint with Spouse/Partner
*Can be used in Traditional IRA, Roth IRA, & non-IRA accounts
*Some Income Riders can be used as a death benefit
*Some Income Riders offer Confinement Care benefits
*Solves for Longevity Risk (i.e. outliving your money)
*Provides an income stream that you can never outlive
Most Income Riders attached to deferred annuity contracts come with an annual fee for the life of the policy. That rider fee is deducted annually from the accumulation value of the policy. The rider benefit base is a separate calculation from the accumulation value and can only be used to calculate your initial lifetime income payment.
Some annuities offer a benefit rider that also can be used for confinement care type coverage, but most do not. So when you place your original investment lump sum in a deferred annuity with an attached Income Rider, there are 2 separate calculations. One is the accumulation value, and the other is the Income Rider value.
To draw a visual of that, simply draw a line down the middle of a blank sheet of paper. The left-hand side is the accumulation value, and the right-hand side is the Income Rider value. When it comes time to start your lifetime income stream, you will choose the higher of those 2 values. The vast majority of the time, the Income Rider value will be the higher of the two. Annuity companies design it to perform that way so that they can hold on to the money while they are paying the income stream to you over your life expectancy.
It’s important to point out that Income Riders are not a specific type of annuity. It’s an attached long term/lifetime income benefit that you can decide to add to specific policies at the time of application. Most Income Riders have a “roll-up rate” that grows during the deferral period. Roll-up rates are not like interest rates because you can only use it for income. You can’t cash in or transfer roll-up rate amounts. It’s monopoly money and a phantom account. The real money amount of the policy is the accumulation value.
The income stream coming from Income Riders is a combination of return of principal plus interest. Even if your account is drawn down to zero, the annuity company is on the hook to pay regardless of how long you live. If you set up the Income Rider payment “Joint Life,” then the income guarantee covers both lives. If one “annuitant” dies, then the income stream continues uninterrupted and unchanged for the surviving annuitant’s life regardless of how long they live. When that second annuitant dies, any money left in the accumulation value will go in full and lump-sum to the listed beneficiaries on the policy.
Some Income Rider can also be used as a death benefit, but most can only be used for income. As with all annuity strategies, you can customize the strategy to meet your specific goals. From a financial planning or income planning standpoint, Income Riders provide contractual guarantees while retaining flexibility and full control over the asset. It’s a pro-consumer product because of these unique features.
As with all annuities, you need to shop ALL annuity carriers for the highest contractual guarantee for your specific needs and goals. The same rule applies to Income Riders. It’s important to connect with Stan The Annuity Man to make sure you fully understand the strategy and utilize The Annuity Man’s proprietary Income Rider calculators to find the exact product/rider.
Stan The Annuity Man’s Income Rider Owner’s Manual is a valuable resource for anyone that is considering this strategy. We will send you that hardcopy book as a gift and under no obligation. Between the book, the best annuity calculators on the planet, and speaking with Stan The Annuity Man himself...you will be able to make an informed decision on your terms and on your time frame.