What Is an Income Rider?
An income rider is an optional benefit attached to an annuity contract — most commonly a fixed indexed annuity — that provides a guaranteed lifetime income stream without requiring the owner to annuitize the contract. It is sometimes called a living benefit rider, lifetime income benefit, or GLWB (guaranteed lifetime withdrawal benefit).
The Income Base Explained
At the core of every income rider is the income base — a separate, notional value that determines how much you can withdraw. The income base is not your accumulation value. You cannot withdraw the income base directly, and it does not pass to your heirs. It exists solely to calculate the guaranteed withdrawal amount.
The income base typically grows at a fixed rate (often 5% to 8% per year) during the years you defer income. The longer you wait, the larger the base and the larger the guaranteed withdrawal.
How Withdrawals Are Calculated
When you activate income, the carrier applies a payout percentage to your income base. The percentage depends on your age — older activation ages typically earn a higher percentage. Common rates range from 4% to 6%.
If your income base at activation is $250,000 and your payout rate is 5%, you receive $12,500 per year for life — even if the accumulation value eventually falls to zero.
Rider Fees and Net Growth
Income riders charge an annual fee, usually 0.75% to 1.5% of the income base. This fee is deducted from your accumulation value each year. When evaluating whether an income rider is worth it, compare the projected income benefit against the cumulative fee cost.