An income rider is an optional feature you add to an annuity that guarantees lifetime withdrawals from a separate income base, no matter what happens to the account value underneath it.
What is an income rider?
An income rider is a benefit you can attach to a fixed index annuity or a variable annuity to guarantee a paycheck for life, independent of how the account value behind it actually performs. It comes in two common flavors: the Guaranteed Lifetime Withdrawal Benefit, or GLWB, and the Guaranteed Minimum Withdrawal Benefit, or GMWB. Both aim at the same goal through slightly different mechanics.
How income riders work
Rather than tracking your real account balance, the rider maintains its own running number, usually called the income base or benefit base. During the years you leave it alone, that base climbs at a guaranteed roll-up rate, commonly somewhere between 5% and 8% a year. When you decide to start income, the rider converts the base into a withdrawal percentage tied to your age at activation, typically landing between 4% and 6.5% for a single life payout. From that point on, the checks keep coming for as long as you live, even in the rare case where the underlying account value is drawn all the way down to nothing.
What income riders cost
This guarantee is not free. Carriers typically charge somewhere from 0.95% to 1.50% of the income base every year, pulled from the account value whether you have turned income on yet or not. For someone who wants a guaranteed paycheck later but does not want to hand over control of their principal through full annuitization, that fee is often a fair trade. The catch is that the fee keeps compounding in the background, and if you never actually flip on withdrawals, you have paid for a benefit you never used. Before adding a rider, it is worth comparing what it would pay against a single premium immediate annuity quoted for the same income start date.
Frequently asked questions
What is an income rider?
It is an optional benefit added to a fixed index or variable annuity that guarantees you withdrawals for life, even if the underlying account value drops or eventually reaches zero.
How does an income rider actually work?
The rider tracks a separate income base that grows at a set roll-up rate, often in the 5% to 8% range, during the years before you turn income on. Once you activate it, you draw a set percentage of that base for as long as you live.
What does an income rider cost?
Expect an annual charge in the neighborhood of 0.95% to 1.50% of the income base, taken out of the account value each year whether or not you have started withdrawals.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.