Page 139 - Ready Set Retire

Ready. Set. Retire!

different reason entirely. The problem is it’s almost always sold
in a misleading fashion.

I frequently have people come into my office with a variable
annuity and they will tell me it has a 5% or 6% minimum
guaranteed return. Invariably they are referring to the roll-up
amount of the income rider, and this differs from a guaranteed
rate of return.

Income riders, which we will discuss later in this book, serve a
purpose, which is to guarantee income. So the guaranteed rate
of return agents and stock brokers are selling their clients with
a VA is not a guaranteed minimum 5% that can be earned and
cashed in at the end of the contract. It’s a pretend number only
used to calculate income from the income rider.

It works like this. If the contract starts at $100,000 and is held
for 10 years, the income rider is guaranteed to grow at a
minimum rate of 5%. That means its value will be at least
$162,889. But it isn’t your money. It’s an income base. That
means it’s only used to calculate income combined with an age
factor.

So now assume the owner was 55 when the annuity was
purchased, and 65 when income is to start. A typical age factor
would be somewhere around 4% for a 65 year-old. Therefore
income would be derived as:

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