This post was originally published on May 6th, 2024, and updated on June 30th, 2025.
A Guaranteed Lifetime Withdrawal Benefit (GLWB) is a rider or optional feature added to certain annuity contracts, most commonly variable or indexed annuities. It provides policyholders with the ability to withdraw a set percentage of their investment annually for life, regardless of market performance or the account balance. The primary appeal of a GLWB lies in its ability to offer a stream of income that lasts as long as the policyholder lives, even if the annuity's cash value drops to zero due to poor investment returns or ongoing withdrawals.
This type of benefit is designed to address one of the most pressing concerns among retirees: outliving their retirement savings. By offering a guaranteed income for life, GLWBs help retirees maintain financial stability in the face of market volatility and increasing longevity.
GLWBs serve a specific role in retirement planning. This section explores why individuals might choose to add this rider to their annuity contracts.
A major goal of retirement planning is to ensure a steady income stream that covers daily living expenses. The GLWB achieves this by offering regular withdrawals for life, regardless of the performance of the underlying investments. It converts a volatile investment into a predictable income stream. This consistency makes it easier for retirees to budget their expenses and avoid having to sell assets at a loss during market downturns. For retirees without pensions or with limited Social Security benefits, a GLWB becomes a critical part of income planning.
As life expectancy increases, the risk of outliving one’s savings becomes more significant. The GLWB helps mitigate this risk by providing lifetime income, even if the annuity account balance is depleted. This ensures that retirees do not have to rely solely on government programs or family support in later years. The assurance of income beyond one’s life expectancy allows individuals to spend with more confidence throughout retirement rather than hoarding funds for fear of the unknown.
For retirees with other income sources, such as Social Security or pensions, a GLWB can serve as an additional layer of income. This diversified approach supports better budgeting and helps cover rising healthcare or living costs. It also enables individuals to delay taking distributions from other retirement accounts, such as IRAs or 401(k)s, potentially enhancing long-term tax efficiency. Furthermore, GLWBs can provide income continuity in dual-income households if one spouse passes away, depending on contract terms.
Several distinct features define how GLWBs function. Understanding these characteristics helps investors decide whether the benefit aligns with their needs.
GLWBs offer a fixed percentage withdrawal annually, typically ranging from 4% to 6%, based on the initial investment or the highest account value achieved. This amount remains consistent even if the account value drops. The withdrawal percentage may vary depending on the age at which withdrawals begin, with higher percentages allowed for older annuitants. Some contracts offer an increasing withdrawal percentage the longer you delay initiating income, incentivizing deferral and enhancing long-term income security.
The income base is not necessarily the same as the actual account value. It may include bonuses or step-up features that increase the withdrawal base during deferral years, incentivizing contract holders to delay withdrawals. For example, some contracts guarantee a roll-up rate (e.g., 5%-7%) on the income base during the deferral period. Others allow the income base to reset annually if the account value reaches a new high. These features aim to boost future income, even in flat or declining markets, and can significantly impact long-term retirement planning outcomes.
Once withdrawals begin, the insurer guarantees payments for the lifetime of the annuitant, and in some cases, for the joint lives of the annuitant and their spouse. This applies even if the underlying account is depleted. The continuation of payments after the account reaches zero is what differentiates GLWBs from traditional withdrawal strategies. Some contracts also allow for spousal continuation, meaning that if one spouse dies, the other can continue receiving the same guaranteed income, offering protection for surviving partners.
GLWB riders typically involve additional fees, often expressed as a percentage of the income base. These fees are deducted from the account value and can affect overall performance. Annual fees generally range between 0.75% and 1.5%, depending on the insurer and contract features. These charges reduce the cash value of the annuity and could erode its investment potential, especially in underperforming markets. Additionally, riders may have restrictions on the selection of investment subaccounts, limiting growth potential in exchange for guarantees.
GLWBs provide several unique benefits to annuity holders. This section explores how this rider can contribute to a secure retirement plan.
GLWBs help maintain financial predictability. Retirees know the exact amount they will receive annually, enabling more effective budgeting and planning. This predictability enables individuals to allocate their remaining assets more aggressively or conservatively, depending on their overall financial objectives. The assurance of a floor income can also reduce psychological stress and improve quality of life in retirement, as retirees are less likely to worry about market volatility affecting their essential spending.
Even if the markets underperform or the annuity loses value, the GLWB ensures that the promised income stream continues, offering peace of mind during volatile periods. The benefit effectively transfers investment risk from the retiree to the insurance company. This feature can be handy during bear markets, when selling investments to generate income could otherwise lock in losses. For many investors, the ability to ride out market downturns without sacrificing income is a core reason to add this rider.
Unlike annuitization, GLWBs do not require giving up access to the principal. Policyholders maintain ownership of their accounts and can make additional withdrawals; however, doing so may reduce future guaranteed payments. This flexibility can be beneficial for unexpected medical costs or family needs. Moreover, beneficiaries may inherit any remaining account value upon the policyholder’s death, a feature not available with traditional annuitized contracts.
Despite their appeal, GLWBs have limitations and trade-offs. This section outlines key drawbacks to consider.
GLWB riders can be expensive. Combined with the underlying annuity fees, the total cost can significantly reduce the account’s net return over time. Investors need to carefully compare the value of the guarantee with the cost of the rider. In some cases, these fees may erode the cash value of the annuity, especially if market returns are weak. Over time, these cumulative costs can hinder the investment's growth potential and impact its legacy goals.
The structure of GLWBs can be difficult to understand. Terms like income base, step-up, roll-up, and withdrawal percentages may confuse investors unfamiliar with annuity products. This complexity may lead to inappropriate use or unrealistic expectations. Financial professionals often recommend detailed contract reviews and simulations before making a commitment. For individuals without professional guidance, fully understanding how a GLWB works and its implications can be challenging.
The guarantees provided by GLWBs may come at the expense of growth. In some cases, investment options within the annuity are restricted to more conservative portfolios. This limitation can impact long-term accumulation. The insurance provider may require allocation to specific subaccounts or managed portfolios that meet risk criteria for guarantees, potentially reducing upside participation during strong bull markets.
Not everyone qualifies for or can take full advantage of a GLWB. This section identifies typical eligibility criteria.
Most insurers offer GLWBs to individuals within specific age ranges, often starting from age 50 or older. Some products require a minimum age before withdrawals can begin. Delaying the start of withdrawals usually results in higher income percentages, rewarding those who are patient. However, starting too early may reduce the lifetime value of the benefit, especially if the income base has not had time to grow through roll-ups or step-ups.
There is usually a minimum premium amount required to purchase an annuity with a GLWB rider. This can range from $10,000 to $100,000, depending on the insurer. The size of the initial investment also affects the income base and future payouts. Larger investments may qualify for enhanced features or bonuses, such as higher roll-up rates or additional step-up opportunities.
GLWB riders may require a deferral period, during which the policyholder cannot take withdrawals without penalty. This period allows the income base to grow via bonuses or step-ups. The longer the deferral, the higher the potential income base and lifetime payouts. Some contracts also reward inactivity with annual increases in the withdrawal percentage, offering a powerful incentive to delay tapping into the income.
GLWBs are not the only option for lifetime income. Here are several alternatives individuals may consider.
Offer guaranteed payments starting immediately after a lump-sum investment. Unlike GLWBs, they involve annuitization and restrict access to principal. Immediate annuities are simple but lack flexibility. Once purchased, the income stream cannot be altered, and unused funds do not pass to heirs unless a certain period or refund guarantee is selected.
Provide guaranteed income starting at a future date. DIAs can offer higher payouts than GLWBs but lack liquidity and flexibility. These annuities are ideal for individuals who want to secure future income now but do not require access to the funds for several years. However, they carry the risk that the annuitant may not live to the start date of payouts, reducing the value.
Allow investors to withdraw a fixed amount periodically from their portfolio. While flexible, they do not offer lifetime guarantees and may prematurely deplete assets. SWPs are susceptible to sequence-of-returns risk, where poor early investment performance, combined with withdrawals, can cause funds to be depleted more quickly. They require careful planning and ongoing monitoring.
Offered by some mutual fund companies, these funds aim to deliver regular payments while preserving capital. However, they lack insurance guarantees. Market downturns can result in reduced payments or loss of principal. While they offer more transparency and liquidity than annuities, they do not address longevity risk with the same level of certainty.
Understanding a practical scenario can help clarify the GLWB concept. This section illustrates how a GLWB might work in practice.
This example illustrates how the Guaranteed Lifetime Withdrawal Benefit (GLWB) can offer financial security even in adverse conditions. It combines deferred growth, predictable income, and longevity protection into one strategy, making it a compelling option for certain retirement portfolios.
DISCLAIMER: Acquire.Fi is the listing and advertising platform for Web3 businesses and does not certify or verify the information provided to the platform by the business owners. Acquire.FI LTD (Acquire.Fi) does not hold itself out as providing any legal, financial or other advice. Acquire.Fi also does not make any recommendation or endorsement as to any investment, advisor or other service or product or to any material submitted by third parties to Acquire.Fi. Acquire.Fi is not a licensed crypto asset service provider for the purpose of EU regulation. The following list is compiled from Acquire Fi partners. Acquire fi is not a licensed crypto asset service provider for the purpose of EU regulation.
Have queries? Reach out to us on the email below!
team@acquire.fi
.webp)