Guaranteed Minimum Benefits

With annuities there is often a guaranteed minimum the annuitant receives regardless of whether he has a fixed or variable annuity, or an immediate or deferred annuity. The amount of the minimum varies considerably depending on several factors. One factor is the terms in the contract. To change a contract an annuitants has the option of purchasing riders. These riders offer additional features to an annuity. The riders provide a guaranteed minimum for a variety of situations. Before purchasing a rider, it is important to understand how they work and under which circumstances you should use them.

Guaranteed Lifetime Withdrawal Benefits (GLWB)

A guaranteed lifetime benefit withdrawal benefit (GLWB)  allows for minimum withdrawals for the lifetime of the annuitant. The amount of the withdrawal is based on a percentage of the money invested in the annuity. Only the premiums paid to fund the annuity are involved, not the earnings on the money. The percentage is determined by the terms of the annuity contract. The GLWB gives access to the funds in the annuity without having to annuitize the investment money. (Annuitize means that an annuity owner starts taking regular income from the annuity.)

Guaranteed Minimum Withdrawal Benefits (GMWB)

A guaranteed minimum withdrawal benefit gives annuitants the option to protect their annuities in a down market. The annuity is protected against investment losses, and at the same time, the annuity can take advantage of an upturn in the market. Annuitants purchase the GMWB option to lower the risk of their retirement fund losing its value. The annuitant can withdraw a maximum amount of the money every year. The maximum is a percentage of the total amount in the annuity. The annuitant withdraws this percentage of money each year until she recoups the losses of her invested money.

Guaranteed Minimum Accumulation Benefit (GMAB)

Annuities have a minimum guaranteed market value. A guaranteed minimum accumulation benefit or GMAB is another rider or option for annuities. The GMAB protects the annuity’s value during market changes such as downturns or upturns. It guarantees a minimum amount after the accumulation period or another specific time period. The accumulation period is the duration of time the annuitant pays premiums for the annuity. The GMAB only goes into effect if the market value of the annuity falls below the minimum guaranteed market value. With some annuity contracts, the costs of the rider go back into the annuity when the market value of the annuity increases above the minimum value. This happens because there is no longer any need for the rider.

Guaranteed Minimum Death Benefit (GMDB)

Another optional feature of an annuity is the guaranteed minimum death benefit or GMDB. The death benefit is for the beneficiary named in the annuity. The beneficiary gets the GMDB if the annuitant dies before any distributions are paid out. The beneficiary get a payout equal to the amount of money invested in the annuity or equal to the market value of the annuity on the last anniversary statement. The beneficiary gets whichever is higher in value. The GMDB guarantees that the beneficiary receives the full value of the annuity.

Guaranteed Minimum Income Benefit (GMIB)

The guaranteed minimum income benefit or GMIB is another optional addition for an annuity. After an annuity is annuitized, the GMIB guarantees the annuity owner gets a minimum amount of distributions or income from the annuity. The GMIB guaranteed the annuitant gets regular income regardless of the market’s fluctuations. The minimum income is determined by the expected growth of the invested money in the annuity.

The various guaranteed minimums of annuities are options an annuitant purchases to maintain the value of an annuity or to protect the money from market fluctuations. For an additional cost, an annuitant can buy a variety of riders. Before purchasing a rider, it is important to understand what the rider entails and what the benefits are. Guaranteed minimums are not always needed but can prove useful in some situations.