Managing Retirement Expenses: What to Know About Lifetime Income Riders

Longer, healthier retirements have more and more Americans looking to fixed index annuities and lifetime income rider options for their lifelong income needs.

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For many, retirement can be the expense of a lifetime. The average total cost of a retirement exceeds that of the average college education, expense of raising a child, and the cost of a home, combined.1^Average adult 65+ spends $48,000 annually U.S. Bureau of Labor Statistic; average life expectancy 84-86.5 years; totals: $48,000 x 20 = $960,000. LendingTree, ValuePenguin, Avg. tuition: Public Four year (in-state) annual: $9,970; Public Four-year (out of state) annual $25,620; Private Four year (annual): $34,740; U.S. Department of Agriculture (USDA) “The Cost of Raising a Child. 2015 Expenditures on Children by Families.” 2017: $233,610;; median home value in the United States is $226,700. Perhaps for this reason, the Indexed Annuity Leadership Council, reports that the biggest fears facing 50 percent of Americans are outliving their income and the inability to maintain their current lifestyle.2^Indexed Annuity Leadership Council, "Americans' Top Retirement Fears," 2016.

Whether it's staying active with gym memberships, taking lessons, travelling or having a fun night out by dining at favorite or new restaurant, it can add up during retirement. The Bureau of Labor and Statistics found the average retiree spends roughly $50,000 annually early in retirement then lowering to $37,000 in later years.3^Haynes, C. (2020, July 13). How Much Should I Spend in Retirement? NextGen Wealth. Although every retirement plan will be unique, it would be very beneficial to be able to prepare and adjust a portfolio for both minor and major expenses.

As a result, baby boomers, faced with longer retirements, funded by limited, unpredictable income sources, are turning to safe money alternatives in retirement. As insurance products, fixed index annuities offer options that help ensure retirement income regardless of stock market volatility.   

A fixed index annuity allows the owner to convert a lump sum amount into a series of annuity payments, either for the owner’s life or for a specified period of time. However, once these annuity payments start, the payments are generally locked-in, meaning the owner cannot change the amount of any payment. In an effort to allow owners to receive the benefit of a guaranteed stream of income payments, while still maintaining flexibility and control over their money, many insurance companies now offer income riders, which can be added to a fixed index annuity.

What is an Income Rider and How Does it Work?

The annuity and rider work together to help provide a guaranteed lifetime income stream, while allowing flexibility on when to start, defer or stop payments. In addition to having the annuity benefits of principal protection and tax-deferred growth, adding the income rider allows access to guaranteed lifetime income with additional asset control and the options for single or joint life payments.

Of course, everyone’s retirement income needs are different and assessing those demands will help determine what fixed index annuity and income rider best suit your needs. Below we cover key income rider features to consider when making lifelong income product decisions.

Income Rider Accumulation Period

If an income rider is elected, typically for an annual fee, or sometimes no fee, owners are able to secure growth potential and income stability. With an income rider, there is usually a period during which interest accumulates. Based on the product and the option selected, interest may accumulate on a simple or a compound basis. Interest typically continues to accrue for the time period stated in the rider or until the owner chooses to receive income payments. 

Rider Fees Are Important

When it comes to income riders, different carriers apply fees in different ways. Fees may also vary by product. It’s important to understand what fee is being charged for the rider as well as how the fee is calculated and how the fee is paid.

Income Rider Payout Options

With many income riders, you maintain control of the principal, and have flexibility for how the benefits are paid out. Some income riders also provide increased payment options for health-related costs. The qualifications and availability for increased payout vary by carrier and by product.

Speak with Your Financial Professional

Retirement is often one of the biggest financial decisions a person can make. As the responsibility for retirement planning continues to shift from employer to employee, these are decisions more pre-retirees are having to make. For many, there are few guaranteed vehicles better suited for today’s retirement landscape than a fixed index annuity with an income rider. Speak with your financial professional to see how these options can work for you.



Based on the product and option selected, the interest that accumulates on an income rider is not typically accessible in a lump sum and has no cash value. 
The content provided is for informational purposes only and does not constitute advice. For specific details on how this may apply to your personal situation contact your personal financial advisor or insurance agent for more details. American Equity contracts are only sold through independent agents. Please contact your state insurance department to see if there is an independent insurance agent in your area appointed to sell American Equity annuity contracts. 
Guarantees are based on the financial strength and claims paying ability of American Equity and are not guaranteed by any bank or insured by the FDIC. 
Withdrawals in excess of income rider payments may reduce future income payments. Withdrawals are subject to Federal and State income tax where applicable. A 10% Federal tax penalty may also apply to withdrawals made before age 59½.
American Equity Investment Life Insurance Company® does not offer legal, investment, or tax advice. Please consult a qualified professional.