When evaluating annuity income riders, the guaranteed income amount is an obvious place to start.
But should it be where the comparison ends?
A rider that produces the highest initial lifetime income may be the right choice for some clients. For others, the better fit may depend on what the annuity can continue to provide even after income starts.
That is where total annuity value comes in.
Expert Author
Key Takeaways
- The rider offering the most guaranteed income may not provide the best overall fit for every client.
- Accumulation value can remain important even when guaranteed lifetime income is the primary objective.
- Rider charges, withdrawals, and interest-crediting potential can affect the value that remains available over time.
- A more holistic annuity comparison considers both the income a client could receive and features that can meet their needs down the road.
Why accumulation value still matters when income is the priority
For purposes of this article, total annuity value considers more than the guaranteed income payment. It looks at the combination of income, accumulation value, rider costs, access to funds, health-related features, death benefit potential, and other contract provisions that may become important over time.
Evaluating those pieces together can help financial professionals compare annuity income riders based on the broader role the annuity needs to play in a client’s retirement strategy.
For someone primarily concerned with maximizing guaranteed lifetime income, the larger payment may carry the most weight. But income may be only one part of the planning decision. Depending on the client’s priorities, a financial professional may also consider:
- Access to accumulation value if the client needs funds for other purposes
- Legacy potential and what may remain for beneficiaries
- Health-related benefits that may become available following a qualifying event
- Future flexibility if the client's income needs or financial circumstances change
Each of these draws on the contract’s accumulation value and growth potential. Looking at both the guaranteed income and accumulation potential can help financial professionals evaluate how well a rider supports the client’s broader retirement plan—not just the income payment.
Looking beyond the payout when comparing annuity value
Consider two hypothetical income riders for a married couple, both age 65, purchasing an annuity with a $100,000 premium.
Product 1 with Income Rider
provides $7,500 in guaranteed annual lifetime income, or $625 per month. It has a $1,250 annual rider fee and a 6.00% annual cap on an S&P 500® Index strategy.
Product 2 with Income Rider
provides $6,800 annually, or approximately $566 per month. Its annual rider fee is $950, and its comparable index strategy has a 10.00% annual cap.
At first glance, Income Rider 1 may appear to have the advantage. It provides $700 more guaranteed income each year, or approximately $59 more per month.
For a client focused primarily on generating the highest possible guaranteed payment, that difference could be meaningful.
But another client may view the tradeoff differently.
The lower rider charge and higher cap available with Income Rider 2 may provide greater opportunity to offset some of the effects of fees and withdrawals when positive index performance results in interest credits. Over time, that could affect how much accumulation value remains available in the contract.
Why might that matter?
The client could at some point not need income from the annuity, want access to funds for another purpose, or place greater importance on preserving value for beneficiaries.
The point is not that one rider is better than the other. It is that comparing only the guaranteed income amount leaves part of the decision unexplored.
Questions to ask when evaluating annuity income riders
The starting question may be:
How much guaranteed lifetime income does the rider provide?
A more complete comparison can also ask:
- How much accumulation value and growth potential does the contract keep after income begins?
- What impact could the rider's annual cost have on that value over time?
- How would the contract respond if the client later wanted to take less income?
- Do any health-related benefits draw on the accumulation value?
- How much access to funds does the client want to preserve?
- Is leaving value to beneficiaries an important objective?
- Does the additional guaranteed income justify the tradeoffs elsewhere in the contract?
Accumulation value and growth potential mean more money available for whatever the client may need down the road—liquidity, health-related benefits, legacy. There is no universal answer because clients will place different value on each of these considerations.
Looking at total annuity value is also not about prioritizing accumulation over guaranteed income. It is about understanding the full set of tradeoffs before deciding which product offers features best aligned with what the client wants to accomplish.
Explore how a United Life annuity can help address lifetime income while supporting other priorities that may remain important throughout retirement.
Reach out to your United Life RVP or the sales desk at 800-637-6318 to discuss how different annuity features and income approaches may align with your clients’ needs today and over the years ahead.
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