What is an Income Rider?
This educational podcast from The Annuity Man fully explains how annuity income riders work and how you can determine if you need this type of contractual guaranteee. Income Riders are typically attached to Fixed Indexed Annuities (FIAs) or Variable Annuities (VAs) at the time of application.
Income riders are separate calculations from the accumulation value (i.e. walk away amount) of the Fixed Indexed Annuity (FIA) or Variable Annuity (VA). Income rider valuations are phantom accounts that can only be used to calculate the first income payment. You cannot peel off the interest or cash in the value of an income rider. In addition, you can't transfer the income rider value to another annuity. Only the accumulation value transfers from one annuity to another.
Income riders typically have a high annual growth percentage number that is not true yield. With real yield on bonds or CDs (Certificates of Deposit), you are able to peel off that interest if needed. You can't do that with Income Riders. Income Rider values are monopoly money or a phantom account that can only be used to calculate your locked in income payment.
Income Riders typically charge a fee for the life of the policy, even after the income stream is turned on. That annual fee is deducted from the accumulation value, which hurts the returns of those separate accounts (i.e. mutual funds) with Variable Annuities (VAs) or index call option returns with Fixed Indexed Annuities (FIAs).
You can contact Stan if you have any questions or want to see quotes on your specific situation.