Variable Annuities - Byrd Financial Group Variable Annuities Services

A Guaranteed Lifetime Withdrawal Benefit (GLWB) rider guarantees* that you can withdraw a minimum amount throughout your lifetime—regardless of the subaccounts' performance—and you don't have to annuitize your contract. The guarantee is a set percentage of your investment, which increases the longer you delay taking payments. For example, the insurance company might agree to pay you 5% at age 55. But if you wait until you are 70 to begin taking income, the insurance company might increase that to 6%. At age 80, it could be even higher.

It is also possible that your withdrawal payments can rise over time because the value of your account can utilize a "step-up" provision or be recalculated and locked in at set intervals, allowing you to benefit if your account goes up. Some companies allow you to lock in the increased value as often as quarterly before withdrawals begin, and annually after you begin taking GLWB withdrawals. However, because of the guarantee, you will avoid adverse results if the markets are weak. As a result, you could stay invested in stocks without worrying that a market crash might reduce your income.

This option can be a good idea if you need a guaranteed income but don't like the idea of giving up the control over your money that annuitization requires. However, if you do not intend to take withdrawals from your variable annuity, this option may not be worth buying.

The examples below each assume a $200,000 investment in a variable annuity with a GLWB rider.

What to look for when purchasing a Guaranteed Lifetime Withdrawal Benefit rider

Maximum Withdrawal Amount: Make sure that the GLWB ’s maximum withdrawal amount is consistent with your income needs. Most GLWBs allow you to withdraw between 5% and 7% annually, which is determined by the age at which you begin the withdrawals.

Step-Up: As mentioned in the Bull Market Example above, a step-up can be an important feature of an GLWB when your account value increases. Be certain the GLWB that you purchase contains a step-up provision. Most companies provide for a step-up every three to five years, but a few allow for annual step-ups after withdrawals have begun.

Fees: Fees for the GLWBs range from 0.50% to 0.60% annually. However, a lower fee does not always mean a better GLWB. It is more important that the GLWB's benefits fit your individual needs. In addition to the GLWB fee, also consider the step-up provision, maximum withdrawal percentage, as well as other fees associated with the annuity, such as M&E and sub-account expenses.

Management Fees (Sub-Account Expenses)
Asset-based management fees are used to pay the investment portfolio manager as well as other expenses associated with administering variable annuities. These fees are described in the prospectus, and are sometimes broken down into an investment advisory fee and an operating expense fee. Or they’re aggregated under the management fees heading. These fees don’t appear as a separate figure on your regular statements but are reflected in your portfolio values.

According to the National Association for Variable Annuities (NAVA), management fees average about 0.77% annually, but the actual charge can vary quite dramatically, based on the size of the fund or the way the portfolio invests. For example, fees on index portfolios tend to be significantly lower than fees on international equity portfolios or those requiring extensive or ongoing research and oversight.

In a fixed account within variable annuities contracts, the expenses are paid by the account’s interest margin. This margin is the difference between the percentage being earned on investments made by the company and the percentage being credited to your account as earnings.

Mortality and Expense Fee (M&E)
The asset-based M&E fee that is charged on all variable annuity contracts is designed to pay for four things:

The guaranteed death benefit
The option of a guaranteed lifetime payout
The guarantee of minimum annuity purchase rates when you annuitize.
The assurance that fixed insurance costs, including the M&E fee itself, will never exceed a specified maximum amount for the life of the contract

The cost of these insurance features typically ranges up to 1.5% of the total value of your variable annuity each year, with the 2000/2001 average at 1.158% according to VARDS. In most cases, the fee is subtracted proportionally from each of the investment portfolios into which you’ve put money.

When comparing a number of contracts, you’ll find that sometimes the M&E fee is higher than average, while administrative and maintenance fees are lower, or vice versa. Experts suggest that what you look at is the entire fee package, rather than any single component, in evaluating a contract.

* Guarantees are based on the claims-paying ability of the issuing company or companies.