retirement

Variable annuities on cusp of change

Living benefits 

Look for these living benefits when considering a variable annuity:

Guaranteed minimum income benefit (GMIB): This hedge against market decline guarantees that when your contract is annuitized, your income payments will be based on the greater of either the actual realized value or your principal plus a previously agreed upon interest rate, often 5 percent. That means if you purchased a $100,000 variable annuity that guarantees 5 percent annual growth and leave it untouched for 12 years, you would have at least $179,585 to annuitize, even if stock market losses erode the value.

Guaranteed minimum withdrawal benefit (GMWB): Another hedge against market decline, the GMWB guarantees that you can withdraw annually a fixed percent of the annuity premiums, usually 5 percent to 7 percent, for a period of time until the invested amount has been exhausted, regardless of market performance. A $100,000 variable annuity with this benefit at 7 percent would guarantee an annual withdrawal of $7,000 (7 percent of $100,000) until the $100,000 has been withdrawn, even if market losses erode the value of the annuity.

Guaranteed minimum withdrawal benefit for life: Like the GMWB, this guarantees that you can withdraw a fixed percentage of the annuity premiums, usually 4 percent to 5 percent, for life, even after the investment amount has been exhausted. The GMWB above then continues for life, regardless of the account value.

Guaranteed minimum accumulation benefit: Guarantees that the value of your variable annuity will be at least equal to the face value of the policy's premium after a certain period, regardless of the market performance of the underlying sub-accounts. If you hold a $100,000 variable annuity for the contracted waiting period and make no withdrawals, this benefit guarantees it will be valued at $100,000, even if market losses have eroded the underlying portfolio.

Source: NAVA, the Association of Insured Retirement Solutions

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