What is Guaranteed Lifetime Withdrawal Benefit ?
1215 reads · Last updated: December 5, 2024
A guaranteed lifetime withdrawal benefit (GLWB) is a rider to a variable annuity that provides a minimum payout level, even if market losses reduce the cash value of your contract. Most of these riders also allow you to make withdrawals from your cash value as needed. You typically pay for the GLWB rider with annual fees that can vary based on the issuer.
Definition
The Guaranteed Lifetime Withdrawal Benefit (GLWB) is a rider on a variable annuity that provides a minimum level of payments even if market losses reduce the contract's cash value. Most riders also allow you to withdraw from the cash value as needed.
Origin
The concept of GLWB originated in the insurance industry, designed to offer investors a way to protect their retirement income amidst market volatility. As annuity products evolved, GLWB became a popular rider, especially in the early 21st century, against a backdrop of increasing market uncertainty.
Categories and Features
GLWB is primarily categorized into two types: riders on fixed annuities and variable annuities. GLWB on fixed annuities provides a stable income stream, while GLWB on variable annuities allows investors to benefit from higher returns when the market performs well. Key features of GLWB include providing minimum income guarantees, flexible withdrawal options, and typically requiring an annual fee.
Case Studies
Case Study 1: An investor purchased a variable annuity with a GLWB. During the 2008 financial crisis, despite significant market downturns, the investor was able to receive a stable income from the annuity. Case Study 2: Another investor opted for a fixed annuity with a GLWB, ensuring a fixed income stream in retirement, unaffected by market fluctuations.
Common Issues
Investors often worry about whether the fees for GLWB are worth it. Typically, GLWB fees are set to provide income guarantees, and investors need to decide based on their risk tolerance and income needs. Additionally, misunderstanding the scope of protection offered by GLWB is a common issue, so investors should carefully read the contract terms.
