Many consumers find them attractive because these attached benefits known as Income Riders provide underlying contractual income guarantees to money placed in deferred Variable or Indexed Annuities.
An Income Rider is an attached benefit because it typically guarantees a lifetime income stream at a future start date and is attached to a deferred annuity. It’s a separate calculation from the accumulation value in the deferred annuity.
You can use it only for the future income guarantees. You cannot peel off the interest, transfer the total amount, or accept the rider’s value in a lump sum. This is misunderstood more often than not when sold to consumers.
Yes, when you start taking your income stream. LIFO stands for “Last In First Out”. From a tax standpoint, that means gains come out first and are taxed first. Always get tax advice from a tax professional if you have questions.
Yes. The fee is taken out of the accumulation value (your real money) for the life of the policy. The insurance company often calculates the fee using the higher Income Rider value, and then actually deducts it from your REAL money.
Be sure to know this as some are guaranteed until you turn on the income whether that is 2 or 42 years. Some may offer 20 years, but the fee increases after a certain number of years. Do your homework.
Some percentages increase each year you defer your income stream. Others increase in tranches such as every 5 or 10 years you defer your income stream. Make sure the Income Rider you choose is best for your specific situation.
The income stream you receive is subtracted from the Income Rider value calculation and the accumulation value calculation. The true value proposition of an Income Rider is when the accumulation value goes to zero the annuity company is still on the hook to pay for as long as you live.
Some Income Riders guarantee a contractual percentage for a specific period of time, so when looking at them make sure that if you are deferring your income stream for 15 years that the Income Rider you chose has that contractual guarantee for that needed time period.
There is a myriad of different types of Income Riders available. Look at a minimum of 3 to 5 different carriers to find the highest contractual guarantees available for your specific situation and goals.
No. There is flexibility with Income Riders. You can start the income sooner or later than initially planned, and most allow you to start and stop the income stream if needed.
Yes. As the money grows in the Income Rider you will not be taxed as long as you are not taking income from it. The contractually guaranteed percentage increase grows tax deferred.
The reason is because it is like monopoly money. You can ONLY use the money for lifetime income purposes. Too many people think that the Income Rider annual percentage guarantee, during the deferral period, is true yield, and like a CD percentage guarantee. IT IS NOT!