What Clients Need to Know About Guaranteed Lifetime Withdrawal Benefits

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For retirees, the fear of losing any portion of their retirement savings is very real. Everyone in the market would love a guarantee on their return. Unfortunately, there are few guarantees when it comes to investing, especially when factoring in market turbulence, a fluctuating economy and meager interest rates. 

Annuities with a guaranteed lifetime withdrawal benefit (GLWB) rider can be appealing to clients approaching retirement because, as the name implies, the rider insures the investment and minimizes risk.

To cautious investors, the thought of guaranteed income for life no matter how long they live sounds ideal. And, for many, it is. For a fee, a client can be assured of a minimum return over time, and even if the cash value doesn’t grow, there would still be a guaranteed income to rely upon. 

For all their benefits, it’s important to note that GLWBs may have some downsides, too. As is true for any investment, they may not be in everyone’s best interest. So what do you do when a client insists on a GLWB without considering its hidden drawbacks and other, more viable strategies? 

The key is to arm them with the facts so they can make a fully informed decision about their financial future. Putting aside confusing financial jargon, here are some points to cover with your clients using language they can clearly understand.

5 Reasons Why a GLWB May Not be the Best Answer for Cautious Investors

Fees. Guarantees come at a cost. There may be a fee on top of any other expenses for contract and mutual funds. In addition, if a client changes their mind, there will likely be hefty surrender charges. Taking fees, expenses and surrender penalties into account, an investment would need to perform exceptionally well to surpass the likely returns on a similarly allocated passive account. This underscores the importance of ensuring clients are fully informed so there’s less likelihood of changing their minds down the road. 

Some products do not have explicit fees, but they are built into the product, and surrender fees may diminish over time and eventually be waived. Likewise, most annuities have exceptions for health hardship withdrawals stemming from nursing home confinement or terminal illness, allowing access to the full value of a contract without surrender charges. 

Limits. Advisors need to teach clients that only their annual income is guaranteed, not the variable annuity’s actual account balance. What this means is that if your client chooses to cash out the account, he/she would only receive the market value of the account, not the principal value. Some insurers also limit the investment amount to about half of a portfolio, so the notion of an investor’s entire portfolio being “safe” may be a misconception. 

Activation. Many of those who’ve paid for an annuity rider don’t know how to leverage the benefit and never actually activate the feature. Conversely, some policyholders begin withdrawals even though their contracts are under water. Guiding clients on how to take full advantage of their annuity benefits is critical to avoid these missteps.

Withdrawals. Typically, when an investor begins withdrawing from a GLWB, he/she is pulling from their own cash value. The time it takes to work through the cash value is usually longer than a person’s life expectancy. In the end, some simply withdraw from the investor’s own money and never actually benefit from the policy. In addition, the cost of the withdrawal benefit can be increased by the insurance company that issued the rider, resulting in reduced income. 

Inflation. The average median income from these accounts may not keep pace with inflation. Help your clients find a balance by weighing the risks of inflation in comparison to the risks of outliving their savings.

Plagued with memories of the global financial crisis of 2007-08 and fresh anxieties over recent market volatility, some investors remain convinced that a variable annuity with a guaranteed lifetime withdrawal benefit rider will offer the stability they long for. It might, in fact, do just that. But as an advisor, you can help them thoroughly understand the benefits and drawbacks and guide them to make the wisest decisions about their retirement investments. An informed investor is a confident investor.

If you and your client determine that a GLWB is the right move, consider recommending CUNA Mutual Group’s Zone Income™ Annuity* which allows them to set a “comfort zone” with a guaranteed floor on their index strategy. They can choose to adjust their comfort zone annually to reflect shifting risk tolerances. It also offers double-digit upside growth potential and locks in a minimum income stream to the policyholder for life.


*CUNA Mutual Group’s Zone Income™ Annuity is underwritten by MEMBERS Life Insurance Company.

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