Guaranteed Lifetime Withdrawal Benefit (GLWB)

A Guaranteed Lifetime Withdrawal Benefit (GLWB) is a feature often offered with variable annuities or fixed indexed annuities that provides a consistent and predictable income stream to the annuitant for the duration of their life, regardless of market conditions or performance of underlying investments. This benefit is particularly attractive for retirees who seek a dependable source of income during their retirement years.

How GLWB Works

Initial Setup

When an individual purchases an annuity with a GLWB option, they typically designate a portion of their retirement savings to the annuity contract. The GLWB feature may come with an additional fee, which is deducted annually from the annuity’s value.

Accumulation Phase

During the accumulation phase, the invested amount may grow based on the performance of the underlying investments for variable annuities or the crediting strategy for fixed indexed annuities. Even though the GLWB benefit is primarily focused on income during retirement, this phase is crucial as it can affect the initial calculation of guaranteed withdrawals.

Benefit Base Calculation

The benefit base is a theoretical value used to determine the amount of guaranteed annual withdrawals. It is usually distinct from the actual account value (also known as the “cash value”). The benefit base may increase through either:

• Guaranteed Roll-Ups: A fixed percentage (often around 5-7%) added each year to the benefit base during the deferral period, regardless of market performance.
• Premium Bonuses: Additional amounts credited to the benefit base when the initial annuity is purchased, typically as a percentage of the premium paid.

Withdrawal Phase

Once withdrawals begin, the annuitant is entitled to receive periodic (often annual or monthly) payments at a pre-determined rate, specified as a percentage of the benefit base (commonly around 4-6%). These payments are guaranteed for life, even if the actual account value is depleted.

Key Features and Considerations

Longevity Protection

The primary advantage of a GLWB is providing financial longevity protection, ensuring the annuitant receives consistent payments throughout their lifetime, which shields them against the risk of outliving their savings.

Flexibility and Control

Some GLWB products offer the flexibility to take larger amounts occasionally, though this might adjust future guaranteed withdrawal amounts. Additionally, the annuitant typically retains control over the underlying investments in a variable annuity, allowing for potential market gains.

Death Benefits

GLWB contracts often include provisions for a death benefit, ensuring that if the annuitant passes away before exhausting the account value, any remaining funds are paid to beneficiaries.

Cost of GLWB

The cost of including a GLWB in an annuity contract can vary but generally includes:

• Rider Fees: An ongoing annual fee, usually a percentage of the benefit base.
• Reduced Growth Potential: The guaranteed withdrawal feature may come with conservative investment restrictions to ensure the guarantee can be met.

Surrender Charges and Restrictions

Withdrawing amounts exceeding the guaranteed withdrawal limit or surrendering the annuity may incur charges. Detailed terms vary by provider, and it is essential for potential annuitants to examine these conditions carefully.

Examples of GLWB in Action

Scenario A: Steady Growth

1. Initial Purchase: A retiree, John, buys a variable annuity with a GLWB feature for $100,000.
2. Accumulation Phase: Over 10 years, the benefit base grows at a guaranteed roll-up rate of 6% annually, making it $179,000.
3. Withdrawal Phase: John starts withdrawal at a guaranteed rate of 5%, receiving $8,950 annually for life.

Scenario B: Market Volatility

1. Initial Purchase: Emily invests $200,000 in a fixed indexed annuity with a GLWB during a volatile market.
2. Accumulation Phase: The benefit base grows with a mix of premium bonuses and guaranteed roll-ups to $320,000 over 10 years.
3. Withdrawal Phase: Despite market downturns depleting the actual account value, Emily withdraws 5% of the benefit base, receiving $16,000 yearly, guaranteed for life.

Leading Providers and Products

Prudential Financial

Prudential Financial is a significant player in the annuity market, offering the “Prudential Premier Retirement Variable Annuity” with a GLWB option. Their product promises income growth opportunities linked to equity and fixed income investment performance, combined with lifetime income protection.

Website: Prudential Financial

Allianz Life

Allianz Life provides a range of fixed indexed annuities with GLWB features under the “Allianz Index Advantage” suite. These products are known for their balance of growth potential and income security.

Website: Allianz Life

Jackson National

Jackson National offers variable annuities with innovative GLWB options like “LifeGuard Freedom Flex,” which allows customization of growth and withdrawal strategies catering to individual retirement needs.

Website: Jackson National

Nationwide

Nationwide’s suite of annuities includes customizable GLWB riders, offering both standard and enhanced versions to meet varying customer needs and market conditions.

Website: Nationwide

Conclusion

The Guaranteed Lifetime Withdrawal Benefit (GLWB) offers a blend of security, predictability, and potential growth, making it an attractive option for retirement planning. By understanding its mechanisms, costs, and benefits, retirees can better navigate their financial futures, ensuring consistent income in their golden years. As the market and products evolve, consulting with financial advisors to tailor a GLWB suited to individual circumstances remains crucial.