Variable annuities increasingly offer guaranteed minimum income
benefits. Such benefits provide variable annuity investors a
guaranteed return if they:
- Pay for added protection,
- Retain the annuity for an extended time period, and
- Annuitize the contract with the issuing company.
Generally, the cost for such a guarantee is around 0.5 percent per
year and the holding period is at least seven years. A guaranteed
income benefit might grow at 7 percent for 10 years, or until age
80. Thus, someone who invests $100,000 in a variable annuity with
this feature before age 70 would see the guaranteed principal grow
to nearly $200,000 after a 10-year hold.
This guarantee would be in place whether the original $100,000
investment grows to $250,000 (in which case the guarantee would not
be meaningful) or falls below $100,000 in a prolonged bear market.
In this example, you could convert your $200,000 guaranteed principal
to a lifetime stream of income even if your actual account balance
is only $75,000 or $50,000.
