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Fixed Index Annuities – Do I need that Income Rider?

Anton Hendler

As with so many annuity and other retirement decisions the answer is, “that depends”! This is not a ‘cop out’ on our part.

It depends on where you are relative to retirement, where your funds are currently invested and what your plans are going forward.

There are many rider options within Fixed Index Annuities (FIAs) and most of these carry an additional fee. So before you jump into one of these options you need to answer this question “do I need this?”

The Income rider is one which, upon retirement, will enable you to turn on an ‘income for life’ independently of the funds you have accumulated within your annuity. As the value of your rider account reduces as you take your income, so will the value of your accumulated funds bucket until the accumulated funds are ‘wiped out’. At this point the insurance company will carry the cost of continuing to make payments for life.

To understand how the rider works, you have to understand that what you will have is, essentially, two ‘buckets’ within your annuity. The first is your accumulated funds which will increase according to the index strategy that you have selected each year. At worst, in a negative market, your accumulated holding will stay level but will never go down.

In addition to that first bucket, you will also have a second bucket which will go up each year in accordance with the rider guarantee that you have selected. If you have chosen a rider which guarantees a return of 7% compounded each year, then even if the market goes down (and your accumulated funds bucket stays level) your rider bucket will go up by 7%.

You will never be able to draw cash or a lump sum against this rider bucket but will only be able to convert it into a lifetime income stream as the name would suggest. If you wanted to ‘cash out’ your annuity, then you would only have access to your accumulated funds bucket less any applicable surrender charges.

What you are doing with this rider is hedging your bets on the market. This is a particularly wise thing to do the closer you are to retirement, and the more you are depending on every nickel for your retirement income and have little to no ‘wiggle room’ for market fluctuations. Charges for this rider vary but are normally around 1% per annum. This charge is deducted from your accumulated funds and not the rider, so it will reduce your cash value but not the rider value. Your rider continues to accumulate at the guaranteed rate until you start to take income.

This rider is particularly effective where one wants to lock in a rate of return so that one has the option to turn to the rider account on retirement rather than to one’s accumulated funds which might not have grown to the same extent.

As always, you have choices and your advisor should guide you to choose the best retirement strategies which may, or may not, include the Income Rider.

Click here to learn more from Anton Hendler.

About the Author:

Anton Hendler is the founder of Hendler Financial Group, which is an Independent Financial Group specializing in areas of financial expertise including Taxation, Retirement, Social Security Planning, Retirement Income Planning and Estate Planning.  “Our Mission is to provide and empower our clients with the information, education and resources necessary to make intelligent and long lasting sound financial decisions, making a profound impact on their lives and well-being. 

“Call us toll-free at (888) 574-1115 or visit our website at the to see what we can do for your retirement.”


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