What Is Guaranteed Minimum Withdrawal Benefit (GMWB)?
A guaranteed minimum withdrawal benefit (GMWB) is a rider that allows you to withdraw a set percentage of an income base for life, regardless of how the contract's accumulation value performs.
What Is a GMWB?
A guaranteed minimum withdrawal benefit, commonly called a GMWB or income rider, is a contract feature that provides a guaranteed stream of withdrawals for as long as you live — even if the underlying accumulation value is eventually depleted to zero.
Unlike annuitization, a GMWB does not require you to surrender your contract in exchange for income. The contract remains in force, you retain access to the accumulation value (subject to surrender charges during the surrender period), and your beneficiary may receive any remaining value when you die.
How GMWB Calculations Work
The rider establishes an income base, which is separate from your accumulation value. The income base often grows at a guaranteed rate (e.g., 7% per year) during a deferral period. When you begin withdrawals, the rider allows you to take a set percentage of the income base each year for life — commonly 4% to 6%, depending on your age at activation.
Example: If your income base grows to $200,000 and the withdrawal percentage is 5%, you can withdraw $10,000 per year for life.
What Happens if the Accumulation Value Reaches Zero?
If you live long enough and market performance is poor, the accumulation value may eventually reach $0. At that point, the insurance carrier steps in and continues paying the guaranteed withdrawal amount for the rest of your life from its own reserves. This is the core value of the rider.
Rider Costs
GMWB riders charge an annual fee — typically 0.75% to 1.5% of the income base — which reduces your accumulation value each year. Evaluating whether the income guarantee justifies the ongoing fee is an important part of the purchase decision.