Variable annuities increasingly offer guaranteed minimum income benefits. Such benefits provide variable annuity investors a guaranteed return if they:
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.