When comparing annuity income riders, it can be tempting to focus on which option provides the highest guaranteed lifetime income.
But income alone may not tell the full story.
For purposes of this article, total annuity value means looking at the annuity as a whole—including the guaranteed income it provides, the accumulation value it may preserve or grow, rider costs, liquidity, health-related benefits, death benefit potential, and the flexibility those features can provide as a client’s needs change.
Looking at these elements together can give financial professionals a fuller picture of what a client may receive from an annuity over time—not simply how much income it provides at the outset.
Expert Author
Key Takeaways
- The highest guaranteed income payment does not always mean the greatest overall value for a client.
- Total annuity value considers both the income received and the accumulation value and crediting potential the contract retains.
- Rider fees, crediting potential, and withdrawals all influence that accumulation value over time.
- Looking beyond the income payment can help you evaluate an annuity within a client's broader retirement priorities.
Why accumulation value matters even when purchasing an annuity for income
Today’s fixed indexed annuity marketplace offers hundreds of income riders, each designed differently.
Some riders may emphasize a higher guaranteed income payment but pair it with higher fees or lower crediting rates. Others may initially provide somewhat less income while offering greater potential to maintain or grow accumulation value. Still others may reward clients for delaying income through roll-ups or other rider features.
None of those approaches is inherently better. The right fit depends on what the client needs the annuity to accomplish—and that can change after income begins.
Retirement can last 20, 30, or more years, and the role an annuity plays within a client’s plan may change along the way.
A client may receive an inheritance, sell a business or property, reduce expenses, or gain another source of cash flow. If they eventually need less income from the annuity, accumulation value and crediting potential give them additional options, subject to the terms of the contract.
Health can also change the equation. Some income riders provide enhanced benefits when certain health conditions or activities-of-daily-living requirements are met. Depending on the rider, those benefits may be tied to the accumulation value—as other withdrawals and the amount payable to beneficiaries typically are.
These possibilities can be difficult to predict when an annuity is purchased. Considering total annuity value can help financial professionals think beyond the client’s initial income need to how the contract may continue to support other priorities as retirement unfolds.
None of those approaches is inherently better. The right fit depends on what the client needs the annuity to accomplish—and that can change after income begins.
Looking beyond income: Comparing total annuity value in practice
Consider two hypothetical fixed indexed annuities, each with an income rider, for a couple, both age 65, who purchase a $100,000 annuity with joint lifetime income.
Product 1 with Income Rider:
$7,500 in guaranteed annual income ($625 per month), a $1,250 annual rider fee, and a 6.00% annual cap on an S&P 500® Index strategy.
Product 2 with Income Rider:
$6,800 in guaranteed annual income (approximately $566 per month), a $950 annual rider fee, and a 10.50% annual cap on the comparable index strategy.
The difference in guaranteed income is $700 per year, or about $59 per month.
For some clients, that additional $59 may be the priority. For others, the lower rider fee and greater crediting potential of the second option may make the tradeoff worth considering. In years when the index performs well and interest is credited, those differences can influence how effectively the contract offsets the effects of withdrawals and rider fees over time.
That can become meaningful if the client later wants to reduce or pause income, needs access to another contract benefit, faces an unexpected expense, or wants to preserve more value for beneficiaries.
Neither product is inherently the better choice. The comparison depends on what the client values most—not only when income begins but years down the road.
What to consider when comparing annuity income riders
Rather than asking only:
How much guaranteed income will this rider provide?
Consider asking:
- Once income starts, how much accumulation value and crediting potential stays in the contract?
- How do rider fees affect the contract over time?
- What happens if the client's income needs change?
- Would enhanced health benefits or other rider features depend on the accumulation value?
- How important are liquidity and legacy to this client?
- Is the additional monthly income worth the potential tradeoff elsewhere in the contract?
The answers will be different for every client.
The goal of looking at total annuity value isn’t to maximize accumulation value at the expense of income. It’s to understand what the client receives along the way and what options the contract may help preserve for later.
The right annuity value depends on the client
Guaranteed lifetime income can provide an important foundation for retirement, but no single rider feature tells the whole story. The relative value of income, accumulation potential, liquidity, health-related benefits, and legacy will vary based on the client’s priorities.
Evaluating those tradeoffs together can help financial professionals identify the annuity that is best positioned to support what the client needs today—and what they may need later.
Are your clients balancing guaranteed income with other retirement goals?
Let’s connect to explore annuity solutions designed to balance reliable lifetime income with the other priorities that may matter over the course of retirement.
Reach out to your IMO or the Guaranty Income Life Sales Team at 800-535-8110 to discuss how different annuity features may align with your clients’ income needs, priorities, and long-term goals.
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Guarantees are backed by the claims-paying ability of the issuing insurance company. Fixed indexed annuities are not direct investments in the market and may be subject to caps, participation rates, spreads, fees, surrender charges, and other limitations.