Phil is shopping for an annuity that guarantees he cannot outlive the benefits. Which of these benefit options would he choose?
A. Accelerated lifetime benefit B. Guaranteed lifetime withdrawal benefit C. Right of income rider D. Guaranteed minimum accumulation benefit
The Correct Answer and Explanation is :
The correct answer for Phil’s situation is B. Guaranteed lifetime withdrawal benefit (GLWB).
Explanation
A Guaranteed Lifetime Withdrawal Benefit (GLWB) is a popular feature in annuities designed to provide a safety net for retirees. This option ensures that the annuitant can withdraw a certain percentage of their account balance for their lifetime, regardless of market conditions or how long they live. This means that even if the account balance reaches zero, the individual will continue to receive regular income for as long as they live. This feature is particularly appealing to individuals like Phil, who want to ensure they do not outlive their savings.
In contrast, let’s consider the other options:
A. Accelerated Lifetime Benefit generally refers to a rider that allows policyholders to access a portion of their death benefit while they are still alive, typically in cases of terminal illness. This option does not primarily guarantee lifetime income.
C. Right of Income Rider is a feature that may allow for periodic withdrawals or income payments but does not explicitly guarantee that these payments will continue for the lifetime of the annuitant.
D. Guaranteed Minimum Accumulation Benefit (GMAB) provides a guarantee that the account value will reach a specified minimum by a certain date, which may help with market volatility but does not ensure lifetime income.
In summary, the GLWB option specifically addresses Phil’s need for lifelong income security, protecting him from the risk of outliving his financial resources. It provides peace of mind, knowing that he can depend on a steady income stream throughout his retirement years, which is critical for effective financial planning in later life.