How to Shop for Annuity Income Riders

An Income Rider is not a standalone annuity product.

It is an attached benefit that sits on top of an underlying deferred annuity.

The Income Rider provides the contractual lifetime income guarantee.

That distinction is important because many sales presentations focus heavily on the underlying Fixed Index Annuity rather than the income guarantee you are actually trying to buy.

If lifetime income is your objective, focus on the rider.

Key Takeaways

• An Income Rider is an attached benefit, not a standalone product.
• Income Riders can provide contractual lifetime income.
• The underlying Fixed Index Annuity and the Income Rider involve separate calculations.
• For lifetime income, compare financially strong carriers and the highest appropriate contractual payout.
• Income Rider roll-up percentages are not the same thing as investment yield.
• Most Income Riders have an annual fee.

What Is an Income Rider?

An Income Rider is an optional benefit attached to certain deferred annuities.

It can be attached to products such as:

• Fixed Index Annuities
• Variable Annuities
• RILAs

The rider is designed to provide contractual lifetime income.

The underlying annuity handles the contract value.

The Income Rider handles the lifetime income calculation.

Think of the Contract as Two Sides

One way to understand the structure is to separate the annuity into two sides.

One side is the underlying Fixed Index Annuity.

That side generally determines:

• accumulation value
• walkaway value
• death benefit

The other side is the Income Rider.

That side determines the contractual lifetime income.

Those two values should not be confused.

Focus on the Income Guarantee

If the reason you are buying the annuity is lifetime income, the most important number is the guaranteed income payment.

The index side is secondary.

You should not choose an Income Rider because the underlying FIA has the most attractive hypothetical accumulation illustration.

Compare the actual lifetime income guarantee.

Shop Multiple Carriers

Income Riders are commodity products.

There is no one carrier that is always best.

Different companies can offer different income guarantees based on:

• your age
• your spouse's age
• state
• premium
• income start date
• single-life or joint-life income

That is why multiple carriers should be compared.

Financial Strength Matters

Lifetime income can potentially continue for decades.

That makes the financial strength of the issuing insurance company important.

The source approach is to focus on A+ or better carriers when comparing lifetime income.

Then compare the contractual payout within that group.

Income Riders Are Usually for Future Income

Income Riders are commonly used when the income does not need to start immediately.

For example, you may want guaranteed lifetime income to begin:

• one year from now
• three years from now
• five years from now
• seven years from now

That future start date is a major part of the comparison.

Deferred Income Annuities Are Another Option

Income Riders are not the only way to solve for future lifetime income.

Deferred Income Annuities can also provide income beginning later.

If you need "income later," compare both appropriate solutions rather than assuming an Income Rider is automatically best.

Income Rider Quotes Can Change

Income Rider guarantees can change frequently.

A quote that is competitive today may no longer be competitive several weeks later.

That makes current comparisons important.

Rerun the quotes when you get closer to making the decision.

Do Not Confuse the Benefit Base With Cash Value

Income Riders often use a separate benefit base.

That value may grow according to a contractual formula.

It is used to calculate future lifetime income.

It is not necessarily cash that you can withdraw or transfer.

That distinction is one of the most important things to understand.

An 8% Roll-Up Is Not an 8% Yield

An Income Rider may advertise an 8% roll-up or similar percentage.

That does not mean your money is earning an 8% investment return.

The percentage applies to the rider's benefit calculation.

It is not necessarily cash value.

It cannot automatically be withdrawn as an 8% gain.

Social Security Is a Useful Comparison

Social Security benefits can increase when you delay taking them.

That does not mean the account is earning an investment yield.

Income Rider roll-up percentages work similarly in concept.

They are part of the formula used to determine future income.

Most Income Riders Have Fees

Income Riders usually come with an annual fee.

That fee typically comes out of the underlying annuity's contract value.

The fee does not necessarily reduce the contractual lifetime income guarantee, but it still affects the policy.

Understand:

• the rider fee
• how long it is charged
• where it is deducted
• whether the rider can be removed

Income Rider Payments Are Generally Static

Income Rider payments are typically designed to provide a fixed contractual amount.

Do not assume the payment will automatically increase with inflation.

Some products may have additional features, but those should be evaluated specifically rather than assumed.

Indexed Performance Does Not Automatically Increase the Income

A common sales pitch suggests that strong index performance will automatically increase the Income Rider payment.

Do not assume that.

The underlying index and Income Rider are separate calculations.

Focus on the contractual rider guarantee you can actually verify.

Income Riders Are Not Primarily Death Benefits

The Income Rider exists for lifetime income.

The underlying annuity may provide a death benefit based on contract value.

Those are different features.

If legacy is the objective, evaluate that separately.

Income Riders and the Income Floor

An Income Rider can be one piece of your retirement income floor.

That floor may include:

• Social Security
• pensions
• Income Rider payments
• other lifetime income

The goal is dependable cash flow that you cannot outlive.

Ask Two Questions

Before shopping for Income Riders, ask:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

If the answer is lifetime income later, an Income Rider may be one product to compare.

Where to Compare Income Riders

Use our annuity calculators to compare current Income Rider guarantees from multiple insurance companies.

Compare the same income start date and payout structure across carriers and focus on the actual contractual lifetime income.

The Bottom Line

Shopping for an Income Rider should be straightforward.

Ignore the logo, brochure, hypothetical index returns, and large roll-up percentages.

Focus on the contractual lifetime income guarantee, the carrier's financial strength, the fee, and the income start date.

The rider exists to provide income. Evaluate it based on the income it actually guarantees.

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