What is an Income Rider
Jason Stolz CLTC, CRPC
What is an income rider? It’s an optional feature added to a fixed or fixed indexed annuity that guarantees a lifetime stream of income—regardless of how the market performs or how long you live. For retirees and pre-retirees seeking steady, predictable income, an income rider converts retirement savings into a “personal pension” while keeping control of the principal value.
At Diversified Insurance Brokers, we help clients compare income riders across top-rated carriers to find the right balance of growth, protection, and payout flexibility. Income riders are one of the most powerful tools available for creating guaranteed income without sacrificing access to your money.
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How an Income Rider Works
An income rider attaches to your annuity contract and guarantees a specific withdrawal benefit—often called the lifetime income benefit base. While the account value may fluctuate (if tied to an index), the income base grows at a fixed rate—often 5% to 7%—until you start withdrawals.
When income begins, you receive guaranteed lifetime payments based on your age, payout percentage, and accumulated income base. These payments continue for life—even if your account value eventually runs out.
Understanding Roll-Up Rates and Growth
The roll-up rate is the guaranteed percentage your income base grows by each year before withdrawals begin. For example, a 7% roll-up for 10 years compounds the benefit base significantly—used later to determine your payout.
It’s important to remember that the roll-up rate applies to the income value, not the cash value. The real power comes from how that translates to your lifetime payout percentage when income starts.
Do Income Riders Have Fees?
Yes, most income riders have a modest annual cost—typically between 0.75% and 1.25%—deducted from your account value. This fee supports the guaranteed lifetime income benefits, but it does not reduce the income payments you receive once withdrawals begin. It’s almost always lower than the ongoing expenses of a variable annuity.
Income Bonus vs. Roll-Up Rate
Some annuities include an upfront income bonus—a percentage added to your income base at issue. Others rely on steady roll-up growth. While bonuses are appealing, what matters most is the total guaranteed payout the annuity delivers, not just the size of the bonus. A smaller bonus with a higher lifetime payout rate often produces more income over time.
Benefits of Adding an Income Rider
- Lifetime Income: Guarantees you’ll never outlive your money.
- Flexibility: Start withdrawals when needed—commonly after age 59½.
- Protection: Account value remains intact (minus withdrawals) with full carrier backing.
- Spousal Coverage: Joint-life riders can continue income for both spouses.
- Predictability: Stable, guaranteed income unaffected by market changes.
Comparing Income Riders Across Carriers
Every insurance company sets its own rules for roll-up rates, payout percentages, and rider costs. Some also offer step-ups—where your income base locks in the highest anniversary value. Working with an independent brokerage like Diversified Insurance Brokers lets you compare all of these variables side-by-side to see which plan produces the strongest lifetime income for your situation.
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FAQs: Income Riders
Do all annuities offer income riders?
No. Only certain fixed and fixed indexed annuities provide optional riders for guaranteed income. Variable annuities may include similar benefits but typically with higher fees.
When can I start income from the rider?
You can usually activate income after the first year, though most clients wait 5–10 years to allow the income base to grow via the roll-up rate.
Does the income continue for life?
Yes. Once activated, income is guaranteed for as long as you live—even if the account value reaches zero.
How does the fee affect my contract?
The fee slightly reduces your account value each year but never lowers your guaranteed payout. It’s a tradeoff for long-term income security.
Can both spouses be covered?
Yes. Joint-life riders provide continuing income for the surviving spouse, often at 100% or 50% continuation.
Can I remove the income rider later?
Some carriers allow you to cancel the rider if income hasn’t started. Once income begins, the rider remains in effect for life.
