Income Riders on Annuities: Take Care!

» Posted by on Oct 5, 2011 in Featured, Retirement Planning | Comments Off on Income Riders on Annuities: Take Care!

Income Riders on Annuities have become a very popular idea.

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

Most Annuities are never ‘annuitized’, meaning the owner of the annuity never turns on the switch which begins a lifetime stream of income that doesn’t stop until the annuitant dies. There are two things that cause some people to never turn on the switch:

 

  1. The annuity doesn’t pay anyone any additional money when the annuitant dies.
  2. Once the annuitant turns on the switch, the switch cannot be turned off, meaning, whether the annuitant needs the money for income or not, an income will be paid, rather than a legacy to the annuitant’s heirs.

 

In the last few years the idea of an Income Rider was introduced.

 

An Income Rider allows the annuitant to take income from his or her annuity for a while, and then turn the income flow off, leaving the funds that are not paid out in an accumulation account that can be passed on as a legacy, or withdrawn in a lump sum or several lump sums.

 

So as you can see the Income Rider solves the two problems with the annutization process mentioned above.

 

We believe that it is very important to note that since an Income Rider is additional insurance, you pay for the income rider, usually by diminishing the accumulation value of your annuity.

 

So, we believe that it’s very important that you determine the likelihood of the need for income from your annuity.

 

If it’s more likely that you will want the accumulation value of your annuity to pass on to your heirs, you won’t want to pay for the income rider.

 

Some objections to following the logic mentioned above are as follows:

  • The Income Rider is included with the annuity at no additional charge

No additional charge doesn’t mean the same as no charge. If the income rider is there, you’re going to pay for it. The cost of income riders is not trivial, and unless you’re fairly confident that you’ll want to use the income rider, you may not want to pay for it.

  • I don’t know whether I’ll need income from the annuity or not.

We can help you get closer to knowing whether you’ll want income from your annuity by running a calculated projection of how your retirement funds will play out. The projection will take into consideration many considerations such as market downturns, the need for Long Term Care and many others. If it turns out that you’re fairly certain that you want your annuity for income you may find that a Single Premium Immediate Annuity (SPIA) is a better buy for you. The SPIA is designed exactly for someone who wants a predictable income for life. It’s an option that should not be overlooked, because it’s likely to offer more value to the person who is certain that her or she is more interested in a lifetime income from the annuity than leaving a legacy from the annuity.

 

It’s a good idea to ask your agent to run a projection that will give you an idea of how much of the accumulation value of your annuity will be diminished by the cost of the income rider, before choosing to add an income rider.

 

Remember that an income rider is insurance and insurance companies and insurance agents like to sell insurance. It’s up to you to decide whether you want to buy the additional insurance, which is what an income rider is.

 

In summary, there is no one annuity, or investment vehicle that is the best for every situation. The decision as to what financial instruments should make up your retirement portfolio should result from serious study by you and your trusted advisor.

Request A Free Consultation
(913) 440-9637


Service Area

The Wade Agency proudly services Kansas and Missouri, including: Belton, Bonner Springs, Bucyrus, Clearview City, Cleveland, De Soto, Edgerton, Edwardsville, Eudora, Gardner, Grandview, Hillsdale, Kansas City, Leawood, Lenexa, Linwood, Louisburg, Mission, New Century, Olathe, Overland Park, Peculiar, Prairie Village, Raymore, Shawnee, Shawnee Mission, Spring Hill, & Stilwell, KS.

Helping Olathe & Kansas City navigate the insurance and retirement world.