Can I Buy An Income Rider Without Buying An Annuity?
Question: Is there a way to buy an income rider without having to buy an annuity? from Steve in Houston, TX
Answer: This is one of the most forward thinking and insightful questions I’ve ever received. You Steve, are a visionary my friend. Currently, there are a select few companies working on income riders that are “non-annuity”, with more coming in the near future in my opinion. People want guarantees and benefits that annuities provide, but in many cases, they don’t want to tie their money up to get those guarantees. Common sense rules in a capitalist society, and this situation and product void is no different.
First of all, let’s do a quick review on what an income rider attached to an annuity actually is and what it does. An income rider is a benefit that you can attach to a deferred annuity (usually a variable or indexed) that typically solves for income needs down the road. Most income riders come with a contractually guaranteed percentage annual growth amount. That amount can be used to calculate a future lifetime income stream. The catch is that you can’t get to it lump sum, and it can only be used for income. In addition, once the income stream is turned on, the guaranteed growth amount stops.
So let’s get to the fun part. There are companies that are now creating income riders that you can attached to your typical stock and bond portfolio. One of those companies is Aria Retirement Solutions. I recently spoke to their CEO, David Stone, about how the product works and how it is being received in the investment community. He is a pioneer with this strategy, and I was impressed by the depth of the product they currently have in place.
It was only a matter of time before some financial entrepreneur would figure out how to offer an annuity benefit without having to endure the typical surrender charge structure of most annuities. If you want to learn more, I encourage you to visit the Aria site at www.retireone.com and enter their client site portal for complete information.
The bottom line is that there are no surrender charges attached to the product (which I love), and it can be used with both IRA and non-IRA accounts. It’s available to ages 35 to 90 (wow!), and fees range from 0.80% annually to over 2.00% depending on how you want to customize your guarantees. Transamerica is the company backing up this rider strategy, so there’s strength behind the thought.
If you are currently using a financial professional to manage your portfolio, I would ask them to look at this lifetime income rider for you to see if it would be a good fit for your specific situation.
This is just a tiny glimpse into the future of income guarantees and how they will be delivered to a growing demographic that needs an income stream that they cannot outlive. I predict some incredible innovation in this financial niche in the coming years, with companies scrambling to get in front of the 10,000 baby boomers retiring every day. Consumers will always win in the end. This will be no different.
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Nice explanation, Stan. I would add, for those readers who want to learn more and may do a web search, that these new beasts are usually called "Contingent Deferred Annuities" (CDAs), although I've seen them referred to as just Contingent Annuities. They're not available in every state, as their regulatory status is still unclear (some states regulate them as fixed annuities, others as variable annuities, and some consider them impermissible investment guarantee instruments).
To clarify/correct John's comment, all states but one (NY) regulate CDA's as annuities. New York is difficult for most insurance companies to navigate in. The reception of state regulators has been very positive due to the consumer friendly design and the need it fills in the marketplace.
Thanks for that clarification, David. That'll teach me to make comments based on year-old data. I'm indebted to you.