How to Compare Guaranteed Income Riders Across Providers

"Which providers offer the best guaranteed income rider?" is the question we get asked most, and it is the wrong question. Every carrier's brochure shows a different headline: a 10% roll-up here, a 7% "income bonus" there, a 200% benefit base somewhere else. None of those numbers is what you get paid.

What you get paid is one figure: the benefit base on your income start date, multiplied by the payout percentage for your age that year, minus nothing. Everything else on the page exists to make that number look bigger or smaller than it is. So instead of ranking carriers, which would be out of date by the time you read it, this guide shows you how to pull the seven numbers that decide your income from any illustration and lay two providers side by side.

The seven numbers that decide your income

Get these from the illustration, not the brochure. If the agent cannot show you a line for each one, that is your first data point about the product.

1. The roll-up rate, and whether it is simple or compound. The benefit base grows at this rate during the deferral years. A 7% compound roll-up beats a 10% simple roll-up after about seven years. Ask which it is, and for how many years it lasts; many stop at 10 years or at age 85.

2. The roll-up cap or reset conditions. Some riders stop rolling up the moment you take any withdrawal, including a required minimum distribution. Others let you take RMDs without losing the roll-up. If you are buying inside an IRA, this one clause can be worth thousands a year.

3. The payout percentage at your planned start age. This is a schedule, usually rising 0.1% per year of age, sometimes in five-year bands. A rider paying 5.0% at 65 and 6.0% at 70 rewards waiting; one paying 5.5% at both does not. Get the exact figure for the age you actually intend to start.

4. The rider fee, and what it is charged against. Typical range is 0.75% to 1.25% a year. Charged on the account value, it shrinks as you draw down. Charged on the benefit base, it keeps growing while your real money shrinks. The dollar amount in year one and year ten is on the illustration; find it.

5. The joint-life reduction. Covering a spouse usually lowers the payout percentage by 0.5% to 1.0%. On a $200,000 benefit base that is $1,000 to $2,000 a year, every year, for two lives. Compare joint to joint, single to single.

6. What happens to the account value. The rider guarantees income, not principal. Your real account value keeps earning index credits and paying the fee. If the account value hits zero, income continues, but there is nothing left for heirs. Riders that credit more to the account value leave more behind; the illustration's "account value at age 85" line tells you which is which.

7. The carrier's financial strength rating. A rider is a promise that may need to be kept for thirty years. A- or better from AM Best, no exceptions. Our carrier evaluation guide explains how to read the ratings.

Two riders, same money, different answer

A 60-year-old with $200,000 who plans to start income at 67. Both carriers A-rated, both fixed index annuities, both riders quoted on the same day. The numbers are illustrative but the shapes are real.

Rider A wins the brochure. It has the bigger roll-up and the bigger benefit base, and that is what the sales page leads with. Rider B pays more income, charges less, and keeps growing if this buyer has to take RMDs from an IRA at 73. Over a twenty-year retirement, Rider B is ahead by more than $30,000 in income and fees combined.

You would never see that from the headline numbers. You only see it from the seven lines above.

The three traps

The headline roll-up. A 10% roll-up on a benefit base is a marketing number. The benefit base is a phantom account you can never withdraw as a lump sum. Its only purpose is to be multiplied by the payout percentage. A big roll-up paired with a small payout percentage is a pricing choice, not a gift.

The bonus. "10% premium bonus" and "income bonus" almost always apply to the benefit base only, often come with a longer surrender period, and are paid for somewhere else in the contract, usually through lower index caps or a higher rider fee. Judge the rider on the seven numbers with the bonus already included, then ask what it cost.

The stacking illustration. Some riders credit index gains to the benefit base on top of the roll-up. The illustration will show a hypothetical index return that makes the benefit base soar. Ask for the illustration at 0% index return. That is the guaranteed case, and it is the only one you can plan around.

A worksheet for comparing providers

Copy this for every rider you are shown. Fill it in from the illustration, not from memory.

If two riders land within 3% on guaranteed income, break the tie on fees, then on what the account value looks like for heirs, then on the carrier rating. Do not break it on the roll-up.

When a rider is not the answer

A guaranteed income rider is worth its fee when you will actually use the income, you can wait at least three years to start, and you value keeping the account value accessible in the meantime. It is not worth it if you plan to start income immediately (buy a SPIA), if you will never turn the income on (you are paying 1% a year for nothing), or if the rider fee plus a low cap leaves the account value going backwards in flat markets.

Our SPIA versus income rider comparison has the numbers on where the crossover sits by age and deferral period.

The bottom line

There is no best provider. There is the rider that pays you the most guaranteed income for your age and start date, at the lowest fee, from a carrier you can trust for thirty years. Pull the seven numbers, run the worksheet, and the answer usually becomes obvious. If it does not, that is what we are here for.