LIBRs and GLWBs: What agents need to know now
April 14, 2014 by Paul Cross
Ten thousand baby boomers are retiring daily with corporate pension plans in demise, state and federal pension plans under water, Social Security $16.8 trillion in the red, and a nation that is drowning in a sea of debt. Seventy-seven million boomers, who are preparing for the golden years of retirement in search of safe, secure ways to protect and grow their IRAs, 401(k)s, TSAs and TSPs with income guaranteed for life, are now recognizing the real value and merits of annuities.
How can boomers be assured of an income for life?
Financial universities and economists around the globe have concluded and documented that income annuities can provide an income for life at a cost as much as 40 percent less than a traditional stock, bond and cash mix. It’s interesting to note that while economists and financial universities were just catching on to the real merits of annuities, the annuity companies were again a step ahead with the introduction of special life income benefit features that may increase the opportunity for income you cannot outlive.
The cost factors agents need to know now
In addition to lifetime income provisions, including the payout factors that can impact the income stream, here are some factors agents need to know now relative to optional income benefit riders, LIBRs and GLWBs.
1. The growth percentage or rollup rate may range from 4 percent to 8 percent.
2. The rider annual cost factor — costs may range from free or 0.50 percent to 0.95 percent.
3. Some contracts base the cost factor on the accumulated value; some are based on the income rider value. This can be a substantial difference in the amount charged to the accumulated value.
4. Some annuities charge the cost factor to the accumulation value on the day the contract is issued, while others start the charge at the end of each year when interest is credited.
Other important factors you don’t want to overlook
Many agents feel the accumulation value is less relevant when lifetime retirement income is the primary goal. However, at what point is the inheritance value to a surviving spouse or other family members not important?
When the rider cost factor is based upon the income value, as compared to the accumulation value, the rider cost will remain substantially higher throughout the income period, increasing the depletion of the accumulated value.
For unforeseen reasons, some people will want to stop the income benefit rider, or they may elect 10 percent penalty-free withdrawals. Therefore, it is important to provide good lifetime income benefit options with appropriate cost factors to maximize the income value and the accumulated value to the benefit of the owner and/or the beneficiaries.
Now is our opportunity to help people enjoy a richer retirement with income they cannot outlive.
