How to Choose a Variable Annuity Guaranteed Minimum Income Benefits

You won't have to treat your annuity as a gamble if you have a guaranteed minimum income benefit.

A variable annuity was never a simple product. There are rules and fees that are printed in very small letters in an incredibly boring booklet called a prospectus. Today new riders confuse the issues even more. Their names blend with one another, making a comparison seem impossible. If you are going to choose an annuity with a guaranteed minimum income benefit, there are a few things you should compare.

Things You'll Need

• Brochures from several companies

Instructions

1. Understand that a guaranteed minimum income benefit, or GMIB, allows the consumer to remove money at a specific rate. It guarantees that the money will last the number of years that it takes for that percentage to deplete the principal if there is no growth. It is different from a guaranteed withdrawal benefit.

2. Collect brochures from several companies. Write down the features of the guaranteed minimum income benefits. List any questions that you have to choose your guaranteed minimum income benefit and call a company representative to clarify your answers. Make certain that you know the cost of the rider. The amount is calculated in basis points. These are tenths of a percent. If you pay 15 basis points, you are paying 0.15 percent each year.

3. Question how long you have to hold the product before you can begin the income phase. Some products require that they be held as long as 10 years before money can be withdrawn and still have the guarantee. If you are in need of income immediately, this may not be the appropriate product for you.

4. Ask if there is a newer rider. Many of the original riders were not as beneficial as the newer ones. The original riders made minimum guarantees of return of premium. Newer riders with the same name or lifetime added should guarantee that the owner will never run out of money.

5. See if the rider transfers to a spouse. Some of the guarantees can be purchased with joint owners. In the case of an IRA, that is not possible, since it is an Individual retirement account. Check to see if the spouse, as a beneficiary will receive the same rights on the rider.

6. Find if there are any stipulations or requirements. Some riders require that specific funds be used as investments, for it to be added. The company uses specific blends that have a track record that exceeds the guarantee that they are giving.

7. See if there is a reset feature on the rider. A few companies offer a reset for the guaranteed minimum income benefits. These are quite valuable and should be considered as a top feature.

References

• U.S. SEC: Variable Annuities: What You Should Know
• Annuity FYI: What's a Guaranteed Minimum Income Benefit?