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Top 5 Reasons to Use an Income Rider Instead of Investment Accounts for Retirement Income

Carl Ostenson

Do you want to put aside a portion of your retirement savings so it will guarantee you income when you retire? Here’s my Top 5 reasons why using an indexed annuity with an income rider could be a good solution:


Since the market bottom in March of 2009 the SP 500 Index is up 165% without any real major correction. (As of 2/24/14) You are also 5 years older now and have less time to recover if a crash happens again. Congrats on the gains, but maybe now is a good time to consider locking in some of those gains and setting yourself up for some future retirement income.


We get statements from Social Security estimating what our future income will be. If you are lucky enough to get a pension you also get statements telling you an income that you could expect in the future.

Why not use some of your IRA/401k to do the same thing. Put a portion in a good indexed annuity with an income rider and you will get the same kind of assurance on a level of income you can get in the future. The younger you do it, the more your income has a chance to grow before you need it. Just like Social Security. The longer you wait, the more income you get.

It’s pretty much a guess if you use investments because you don’t know exactly how much they will grow or how much income you can take.


There’s a battle between using investments and using annuities to provide retirement income. Lately there have been lots of reports about the 4% withdrawal rule not working anymore. (So that means a 5% or 6% withdrawal is way too high)

Some reports now say a 3% withdrawal rate from an investment portfolio gives you about a 99.9% chance of not running out of money. I’m not securities licensed, so I’ll let the Wall Street people and academics keep guessing at what the right number is.

So let’s do the math. Let’s say you will need $15,000 in extra income from your IRA/401k when you retire at age 65, to supplement Social Security.

  • At a 3% withdrawal rate you will need deposit $500,000 to get the $15,000 income you need. If you take more than 3% out your odds of running out of money before you die increase.
  • At age 65 there are indexed annuities with income riders that will guarantee you a 5.5% withdrawal rate at age 65. So you only have to deposit $260,000 to get the same amount of $15,000 in income. (And it’s contractually guaranteed)

That would leave you $240,000 left over to invest however you want, because you know your basic income needs are met. The math and contractual guarantees work in favor of annuities, in my humble opinion.


This doesn’t get talked about much. But I saw it plenty back in my stockbroker days. As you withdraw money from any type of account, if you don’t get enough gains to keep up with the withdrawals, your principal starts to decline.

On top of that, if you also happen to lose money because the underlying investments go down, AND you continue to take out money you have a double whammy.

If you see your account value dropping year after year, there will be a point where you will FREAK OUT and be afraid to keep taking out your withdrawals because you are afraid of totally running out of money.

Income riders can help to eliminate the FREAK OUT FACTOR because even if you deplete your account value to zero, the rider will continue to pay your income for as long as you live. It’s like a reserve parachute.


You can set aside a portion of your money now. Wait 3,5,10 years and know exactly how much income you will get for the rest of your life. This can help you plan and budget for when you stop getting a regular paycheck.

Getting consistent cash flow that’s enough to meet your expenses helps lead to piece of mind and a good night’s sleep.

Disclaimer. I am not securities licensed. I am insurance licensed only. This is not a recommendation to buy or sell anything. This post is not intended to be used as investment advice. It is for educational and informational purposes only. Please consult with a financial professional before you buy or sell anything.

Click here to see more educational articles from Carl Ostenson.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit:

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”


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  • edward bard says:

    annuity contracts do not provide for a return of principal.

    This reduces the yield substantially.

    Is there an alternative?

  • Hi Edward. Thanks for reading. I’d love to answer your question but I’m not exactly sure what you mean?

    Some annuities do provide a guarantee return of principal, some do not.

    What type of annuity are you asking about?

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