This column provides a deeper look at income guarantee riders. The motivation for digging into this again (as I wrote about GLWBs last year) is that earlier in the year, Aria Retirement Solutions created a new income guarantee rider that could be applied to a portfolio of mutual funds and ETFs. It is no longer necessary to buy a variable annuity to obtain access to such a rider. That is both esoteric and exciting at the same time.
As I worked on this initially to compare the features of Aria's RetireOne guarantee to Vanguard's GLWB (an apt comparison, since both riders are underwritten by the same insurance company), I ended up finding many things to look at in more depth.
This first column provides a look at how these guarantees would have fared historically in supporting a guaranteed benefit base over a 10-year deferral period. Since the guarantees are not inflation-adjusted, I find that the amount of downside protection provided by the guarantees may be less than people expect. As I summarize in the conclusion:
[Those] seeking to protect against a sequence of bad returns just before retirement will find that the guarantee still leaves them worse off in inflation-adjusted terms, especially as the rider fees hamper the ability of the contracted assets to grow faster than the unguaranteed alternative.
Please have a look!