March 14, 2025 • 26 mins
Ready to cut through the fog of annuity jargon? This comprehensive breakdown of annuity riders demystifies how these powerful contract features can transform your retirement strategy.
Financial anxiety often centers on three major concerns: outliving your money, facing catastrophic healthcare costs, and losing purchasing power to inflation. The right annuity riders address each of these fears by transferring specific risks from your shoulders to the insurance company's balance sheet. But this peace of mind comes at a price – rider fees typically range from 0.5% to 1.5% annually and are deducted directly from your contract value.
We dissect the five most popular riders dominating today's marketplace: Guaranteed Lifetime Withdrawal Benefits that ensure income regardless of how long you live, Long-Term Care riders that provide enhanced benefits during health crises, Death Benefit riders that protect legacy planning, Cost of Living Adjustment riders that help income keep pace with inflation, and Enhanced Income riders that substantially boost withdrawal percentages. Each serves a distinct purpose in customizing your retirement income strategy.
Perhaps most revealing is our examination of annuity "bonuses" – those attractive premium enhancements that might advertise a 20% immediate boost to your investment. We expose the vesting schedules that determine when (and if) that bonus money truly becomes yours, helping you understand the real value behind the marketing.
Whether you're considering an annuity or already own one, this episode equips you with the knowledge to evaluate whether specific riders deliver value worth their cost. Listen now to sharpen your financial BS detector and make more informed retirement planning decisions. Have questions about your specific annuity contract? Text us your concerns, and we'll tackle them in upcoming episodes!
We love to hear your thoughts, questions, and ideas. Send us a text!
Developing your financial bullshit sniffer one episode at a time.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it.
Welcome back to Bullshit OnStilts.
(00:47):
I'm your host, kelly Aulo.
Glad to have you here today.
It's going to be a good day.
It's going to be a good day.
It's season two, and we've beendoing a series on annuities, so
what's the plan for today'spodcast?
What we'll attempt to do inthis episode is to cover the
annuity writer marketplace as itrelates to you as a consumer,
right?
(01:07):
So the idea is always todevelop your bullshit sniffer,
abusing our experience andexpertise.
Over the course of time, youstart being able to develop and
understand, hey, what thiswriter means and what does it
mean to me down the road inretirement.
And so today we're going totackle that subject.
It's kind of dry, but it is amajor component to annuity.
(01:30):
When it comes to customizingyour annuity, on behalf of the
role you envision that annuityplaying with regards to your
overall investment plan and,most specifically, your
retirement plan, investment planand, most specifically, your
retirement plan, because, let'sface it, annuities predominantly
reside in the retirementplanning arena.
Once again, they're sold byinsurance agents.
(01:52):
They can be a very, very goodinstrument, and today we'll talk
about the customizing of thatinstrument through the use of
annuity riders.
Speaker 4 (02:01):
I really love to customize stuff, like I have
this really cute customizedphone case that I just love.
Speaker 2 (02:07):
Yeah, me too.
I got some major mods done onmy truck.
It's kick-ass actually.
Here's the annuity stuffcovered in episodes one and two.
Speaker 1 (02:22):
So on previous episodes episode one and two of
this season we tackled annuitiesin the first episode, sort of
discussing what each of thethree main categories of
annuities are, how they operateright.
Fixed annuities grow throughexposure to essentially high
quality bond portfolios that theinsurance company manages.
Variable annuities, much likeyour 401k, where you put your
(02:44):
money in the annuity contractand then you invest that money.
You make decisions around whatinvestment funds you want to put
your money into in order togrow that money within the
annuity itself.
And then, lastly, the indexedannuity.
That's where we're not trulyquote unquote investing our
money in an index, a marketindex like the S&P 500, we're
(03:12):
simply declaring that we'regoing to monitor that index, how
it performs over the course ofthe next 12 months my annuity
contract year.
And if that index ends upturning in a positive return, my
annuity gets to grow by somedollar amount.
And if it loses, if it has anegative return there in that 12
month contract year, guess what?
My annuity contract valuereceives a zero.
It doesn't experience negativemarket return.
(03:35):
So, three different categorieswe talked about in the first
episode with Mark, our wonderfuland beautiful co host, and the
next one we talked about reallygot into the expenses of the
different annuities right.
How much does it cost for afixed versus a variable versus
an index and so forth?
This time around, as wepromised, we're going to focus
(03:58):
on the riders or the feature ofannuities that make them highly
customizable, especially forretirement planning.
Speaker 4 (04:10):
How should?
Speaker 1 (04:11):
we approach the rider topic.
I think how we come at this iswe take it from at the starting
point, 30,000-foot level.
Look, if you type up and searchannuity riders, you're going to
come upon a whole bunch ofdifferent kinds of riders.
Easily a list of 20 riders canbe gathered together and those
(04:32):
20 riders are going to trulyfocus in on a couple different
features of annuities.
A main feature is deliveringfuture income and the promises
and guarantees that come withthat income.
Another feature is sort of theestate planning component to
this, the identifyingbeneficiaries and making sure
(04:54):
that maybe income that I'mreceiving in retirement will
continue beyond my death andcontinue to pay my spouse or
continue to pay my beneficiaryto the annuity.
So an estate planning componentof annuities.
There are riders that come withthe annuity that help you
achieve that type of planninglevel.
And then there's usually, oh,one out of the 20 riders that
(05:20):
address access to the fundsinside your annuity during that
all important early years ofownership, surrender fees,
schedules, penalty fees,whatever you want to call it.
So lots of riders when it comesto income.
Lots of riders when it comes todisability, chronic illness,
(05:42):
long term care, disability,chronic illness, long-term care.
A handful of riders when itcomes to estate planning and
passing the assets of theannuity on to your loved ones,
heirs, and so forth, and thenusually one, maybe two riders
that offer access to yourcontract value without penalties
during those early years, thosesurrender period, years of
(06:05):
ownership.
Speaker 4 (06:10):
Next up is the list of 20 annuity riders.
He's going to rattle them offfor your enjoyment.
But to skip the list of 20,fast forward to seven minutes 24
seconds and you're welcome.
Speaker 1 (06:23):
All right, so I'm going to go through the 20
riders that are out there.
You might even have them inyour own annuity right now, but
real quick.
Guaranteed lifetime withdrawalbenefit rider GLWB.
Two.
Death benefit rider.
Three long-term care rider oryou might even see it as a
chronic illness rider.
Four cost of living adjustmentrider or you might even see it
(06:44):
as a chronic illness rider forcost of living adjustment rider.
Or cola cola rider.
Five.
Enhanced income riders.
Six.
Return of premium rider.
Seven.
Income accelerator rider.
Eight terminal illness rider.
Nine nursing home waiver rider.
10.
Market value adjustment rider.
11.
Critical illness rider.
(07:05):
12.
Disability income rider.
13.
Joint life rider.
14.
Index participation rate rider.
15.
Spousal continuation rider.
16.
Income for life rider.
17.
Step up rider.
18.
Inflation protection rider.
19.
Survivorship rider.
20.
Flexible withdrawal rider.
(07:26):
That's that one rider thatgives you access to your
contract value.
That's a lot.
Speaker 2 (07:32):
Things are so much clearer why I love cliff notes.
Speaker 1 (07:34):
So, yeah, that's a lot of riders to kind of get
your hands around right 20riders, and there, believe me,
are other riders out there, nodoubt, oh my God, we're kidding,
we kid around.
Speaker 4 (07:44):
We are so good with 20.
Speaker 3 (07:45):
Is an annuity, a sort of silver bullet solution?
Speaker 1 (07:48):
It's not surprising that when you're talking to a
financial advisor that workswith annuities, that when you
present your goals, yourconcerns, your aspirations and
so forth, there is a rider outthere that, from a retirement
planning standpoint, they mightbe able to help solve that.
Speaker 4 (08:10):
You're saying solve meaning to transfer financial
risk out of my hands and intothe insurance company's hands.
Just wanted to clear that up.
Speaker 1 (08:19):
Continue, please.
So don't be surprised if anannuity can do multiple things
within a person's world offinance because of these riders,
as well as the options of howyou want that engine to propel
the annuity down the road,whether it's the fixed or
variable or indexed annuityPretty, pretty cool stuff.
(08:41):
We've been at this big bigmacro level.
Let's now step down just asmidge and let's just focus on
five riders, some of the mostsold riders or purchase riders
out there today.
All right, so five top ridersthat you'll probably encounter
(09:06):
in the market today.
So that first rider wasguaranteed lifetime withdrawal
benefit.
Rider Fees on that can run youanywhere from 0.5% all the way
up to 1.5%, and really, when Isay fees, oh boy, oh good.
Speaker 3 (09:20):
I am glad we're talking about this now, ahead of
all the riders.
Speaker 2 (09:23):
What's the over-under for time on this little tangent
?
Speaker 1 (09:25):
And really, when I say fees regarding riders,
anytime there's a fee associatedwith a rider, you're looking at
that fee being charged againstthe value of the annuity
contract itself.
That's the value that if yousurrender your annuity contract,
that's the amount of money thatyou can walk away with less any
(09:49):
.
You know surrender fees and soforth.
That's an important value.
So if you're buying a rider andit costs you 1% a year and
there's 100,000 in that annuitycontract, you're looking at
$1,000 a year being paid for therider's promises and guarantees
.
That's real money.
(10:09):
Think of it as why annuitycontract will go backwards.
One is variable annuityperformance, negative
performance.
My account value can drop basedon negative performance, but it
also will drop in the fixedvariable or indexed annuity
account.
It will drop due to expenses,fees associated with riders and
(10:31):
other things.
Now I realize I just went on atangent, but important tangent
nonetheless.
Looking back at that guaranteedlifetime withdrawal benefit
rider.
Speaker 4 (10:41):
So why is the GLWB rider the most sold rider today?
Speaker 1 (10:44):
And I think the answer is it's not only sold but
it's wanted, it's desired outthere because it's solving a key
fear associated with retirement, and that fear is the fear of
outliving one's money, outlivingthe amount of money being
mailed to my mailbox every monthso that I can go cash a check
(11:06):
or have it depositedelectronically in my bank
account so when I go to thestore I can still buy groceries.
As a very basic example, theseguaranteed minimum benefit
withdrawals, guaranteed lifetimewithdrawal benefits, guaranteed
minimum income, those types ofbenefits truly are there to
(11:26):
solve one fear the fear aboutliving your money, your income.
And, by the way, it's probablythe number one message that's
being marketed out there insocial media.
I see those all the time Withregards to retirement and
leading people to the annuitysales desk annuity sales desk.
Speaker 2 (11:46):
Gotcha, the GLWB and writers like it are all about
retirement income payments.
Speaker 1 (11:57):
What's next?
Next most purchased annuitywriter out there is going to be
the long-term care or thechronic illness writer.
Every insurance carrier hasnames for their things that they
do and they can mean very muchthe same thing like long-term
care and chronic illness.
Those writers are out there.
They're highly sought after.
A big reason why annuities worktoday is because of those types
of writers.
And once again these writerssolve a leading fear for
(12:20):
retirees, which is encounteringsome illness that is chronic
that over time leaves themreliant upon others just for
living the daily life of aregular old person.
Third rider death benefit rider.
(12:40):
This rider ensures that thebeneficiary will receive what is
?
Speaker 3 (12:44):
I put $100,000 into an annuity.
I take some money out of theannuity.
My beneficiaries get whateveris left over.
No surprise there.
Speaker 1 (12:53):
This rider ensures that the beneficiary will
receive a specific amount uponthe annuitant's death.
Oh, you are totally wrong.
Often the greater of theaccount value or some guaranteed
minimum, whichever is higher.
Once again, example of a deathbenefit.
Let's work with that real quick.
So if I invest $100,000 into aannuity contract and I, let's
(13:17):
say, have a right and I buy adeath benefit rider, maybe my
death benefit rider says look,I'll give you a guaranteed
minimum death benefit of$100,000.
But the catch is I know you put$100,000 in the catch is, if
your contract happens to be lessthan $100,000, let's say it's
(13:38):
$50,000, and you die, yourbeneficiaries will pay them that
$100,000.
That's what we're on the hookto do and we'll do that for you
so that you can still use someof that annuity money in
retirement.
But at a certain point when youpass, if there's money left in
that contract, the death benefitrider will actually increase
(14:00):
the amount of money mybeneficiaries would receive.
Pretty cool.
In fact, there are other ridersthat maybe give you a little
bit of an expansion to thatguaranteed death benefit.
Maybe they give you a 20% bonuson the amount you purchased the
contract with.
So in this example, put $100,000in.
Now my guaranteed death benefitis $120,000.
(14:21):
So that's how death benefitswork generally speaking.
Benefit is 120.
So that's how death benefitswork generally speaking, and for
those that might be noninsurable from due to health
benefit or health issues, forthose that might be non
insurable because they havehealth issues and they can't get
life insurance.
Well, putting money into anannuity with a death benefit
(14:41):
rider may be a small way in,let's say, providing for an
inheritance to loved ones whilestill being able to use some of
the money in that annuity foryour own purposes while you're
still around and still kicking.
These riders are going to beriders associated with someone's
(15:02):
thinking around estate planning.
I want to leave my loved ones,I want to leave my spouse
economic benefit within thisannuity, and so in this case,
I'm going to make sure theannuity has a death benefit
rider that allows me to do that.
We come back to what amount andwhat does a small print say
with regards to that deathbenefit rider?
(15:23):
But it is amongst the topriders out there.
Speaker 3 (15:31):
You've discussed the first, second and third most
used annuity riders out there.
What's next?
Speaker 1 (15:36):
Fourth, cost of living adjustment rider, or COLA
C-O-L-A.
These riders, and riders likeit, are associated with
increasing the amount of incomethat's paid to me from my
annuity every year.
Once I tell the annuity I'mready to get paid my income.
I'm retired now and I want myannuity to begin paying me an
(15:59):
income stream for the rest of mylife and if I have a cost of
living adjustment on that, thatmeans that my I don't know
$10,000 this year of income frommy annuity will go up by 2.5%
next year.
Whatever that changes 3%.
It may be based on the consumerprice index.
It may be a fixed amount thatit increases by consumer price
(16:23):
index.
It may be a fixed amount thatit increases by, but nonetheless
the point is it increases theamount of money that's being
paid into my household for me tolive on in retirement.
For me, the Cola Rider is alwaysgoing to be this stairwell on a
piece of paper, just that itlooks like a stairwell, and
every year each step representsthe new year's payment to me a
(16:44):
little bit bigger than it waslast year for the rest of my
life.
One of the things on the ColaRider to just be aware of is
that if you elect that, you knowthey'll show you the income
projection without the ColaRider and then they'll show you
the income projection with theCola Rider.
Don't be surprised if yourinitial years of payouts from
(17:04):
your annuity are higher if thecost of living adjustment rider
isn't applied or used, whereasif you use the cost of living
adjustment rider, oftentimesyou'll see the payment in the
initial years are lower and overtime they ramp up.
So there's sort of a break-evencalculation you can arrive at
(17:27):
figuring out how much would Ireceive before age 82, I'm
making this up in retirementincome if I take the non-cola
rider versus the cola riderschedule of payments.
It's a good method of math touse to help you ascertain
whether one is better than theother and so forth.
Speaker 3 (17:47):
I did some quick inflation math Using your
$10,000 of annual income example.
If inflation averages 3% peryear, the income for life would
need to grow to 13,000 in 10years and over 18,000 in 20
years, and that's just to keepup with inflation.
Speaker 2 (18:06):
Wow, I can definitely see why a person would want to
transfer at least some of thatrisk, and I'm getting a better
feel for how you can customizeannuities as well, which is
pretty flippin' cool actually.
Speaker 4 (18:15):
If you two are done with your calculators.
By my count, folks, we are atthe fifth most purchased rider.
We should get a drum roll orsomething.
Speaker 1 (18:24):
And the last one, similar to the fourth, which is
enhanced income rider.
Again trying to solve the sameproblem how do I increase the
amount of income I can get outof my money?
And so what's the difference?
Right, what's the differencebetween the inflation protection
riders versus an enhancedincome rider?
(18:44):
Well, think of it this way theinflation protection rider is
going to increase the incomebenefit amount paid to me, the
annuitant of the annuity, whenI'm in retirement.
When I turn that faucet on andthe paychecks start coming every
year, that paycheck will grow,by our early example, by two and
(19:06):
a half percent.
With an income enhanced riderexpands the income that the
annuity promises to pay me.
So if I buy the annuity withoutanything on it, maybe the
annuity says look, I'll pay you4% of the contract for the rest
of your life.
When that date comes and Kelly,you tell me turn my income on.
(19:26):
I'm in retirement, I'm ready toreceive some cash.
But, kelly, just so you know,if you buy this enhanced income
rider, it won't be $4,000 thatwe'll send you, it'll be $6,000
that we'll send you.
Huh, it's pretty good.
That's a 50% increase in theincome.
And you know, when you multiplythat over the course of 10, 20,
(19:47):
30 years.
That's a lot of money comparedto what you put into the annuity
contract.
All true statements.
The one thing that we want toremember when we're looking at
these riders and solving forconcerns that we have or fears
that we have in retirement andrunning out of money that $4,000
or that $6,000 getting paid tothe household year in and year
(20:09):
out will face that inflationmath that the group was just
doing earlier.
So keep that in mind.
You might consider when you'relooking at that annuity.
You might consider looking atit with well, that $4,000 to
$6,000 increase, that tastespretty good.
That's a 50% increase.
I know by math that's a goodnumber, 50% increase.
(20:32):
But I know that over 10, 20, 30years of retirement that $6,000
will not buy as much as it didat the beginning of my
retirement.
So maybe I need to solve forsome cost of living adjustment
mechanism to the income that'sbeing paid to me and enter the
(20:55):
opportunity to talk about costof living adjustment rider.
So you see how when you layersome of these riders together,
it makes perfect sense.
Just be aware of the cost ofall of this quote unquote
security and peace of mind thatcan be built with the annuities
and what are people doing withthem?
They're attempting to customizethe money that they're
(21:19):
investing in the annuitycontract and the income side of
that money down the road inretirement.
They're customizing it based onthe type of riders they're
purchasing and adding to thatannuity to create reliability
with regards to income inretirement retirement.
(21:49):
I feel like you've missedsomething important.
I would be remiss not to talkabout another oftentimes rider
or option within annuity landand we're going to call this
option the bonus option.
What I mean by that isannuities offer bonuses.
Sometimes they bonus theinvestor up front with some
dollar value that expands thevalue of the annuity contract.
(22:10):
It might be a bonus on a indexcrediting strategy within an
index policy or index annuitywhere, with that strategy, you
have the opportunity to have alarger credit occur within your
annuity, where, with thatstrategy, you have the
opportunity to have a largercredit occur within your annuity
contract, or even indexuniversal life policy, by the
way.
So the bonuses exist andthey're out there.
(22:31):
So let's make sure that we'reunderstanding what that bonus
does.
So on one end, the bonus addsreal money quote, unquote to
your contract value.
If I had a 20% annuity bonus, Imight put $100,000 in the
annuity contract and on paper,with the 20% bonus somewhere on
my statement, there would be$120,000 value.
(22:53):
That's my money plus the bonusmoney.
But here's the little devil inthe detail is you always want to
find out in that example, whendoes that $20,000 of extra money
become all mine?
When do I own it outright?
So it's a vesting schedule,meaning that over time, little
(23:15):
by little, a percentage of that20 grand becomes mine.
Meaning that if I surrender mycontract, I take all my marbles
and I leave the game, so tospeak.
I will get the contract valueplus the vested amount of the
bonus I've earned thus far, lessany surrenders and all that
other stuff.
That's what I'm walking awayfrom the contract with.
(23:36):
So how long does it take forthat schedule to be vested?
One, two, when it comes to kindof an index crediting strategy
bonus, it's going to be a cost,there's going to be an at-a-cost
question and sometimes thatat-a-cost might include some
exposure to loss regardinginvestment performance.
(23:58):
And remember, an index annuityis, you know, zero's your hero.
So be weary of the bonuses, thecost to them, and when does the
money truly become mine anddoes it expose me to downside
investment performance risk if Iwere to purchase this rider
bonus whatever for theopportunity for an increased
(24:21):
return.
It's one of the main waysinsurance agents win new annuity
investors or annuity clientsaway from old insurance annuity
carriers is through bonusactivity.
Speaker 3 (24:36):
So what are the costs of these riders?
Speaker 1 (24:37):
Yeah.
So that's a great question whatare the costs of these riders
I'm going to give you just kindof a bandwidth here rather than
each individual rider itself.
So really you're looking atcosts that'll range anywhere
from a half of 1% all the wayupwards of 1.5%, depending on
the rider, depending on theinsurance carrier.
You want to read the smallprint and you also want to.
(25:00):
If you're thinking about buyingan annuity and looking at some
of these riders as geez, a greatway to customize once again
your retirement income planning.
You might want to compareriders between carriers and find
that maybe some are lessexpensive and maybe, just maybe,
they offer you a little bitbetter deal quote unquote on
(25:20):
your money at hand.
Just keep your eyes out, yoursniffer down and you'll see them
where you need to see them.
It's all in small print.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
(25:41):
can have some facts?
Remember we're here to help younavigate through the financial
fog and come out the other sidewith a clear head.
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
(26:04):
Upbeatio for providing thegroovy theme music that's been
setting the tone for our season.
Two adventures Got a topic youwant us to tackle or a financial
myth you're curious about.
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it.
Welcome back to Bullshit OnStilts.
(00:47):
I'm your host, kelly Aulo.
Glad to have you here today.
It's going to be a good day.
It's going to be a good day.
It's season two, and we've beendoing a series on annuities, so
what's the plan for today'spodcast?
What we'll attempt to do inthis episode is to cover the
annuity writer marketplace as itrelates to you as a consumer,
right?
(01:07):
So the idea is always todevelop your bullshit sniffer,
abusing our experience andexpertise.
Over the course of time, youstart being able to develop and
understand, hey, what thiswriter means and what does it
mean to me down the road inretirement.
And so today we're going totackle that subject.
It's kind of dry, but it is amajor component to annuity.
(01:30):
When it comes to customizingyour annuity, on behalf of the
role you envision that annuityplaying with regards to your
overall investment plan and,most specifically, your
retirement plan, investment planand, most specifically, your
retirement plan, because, let'sface it, annuities predominantly
reside in the retirementplanning arena.
Once again, they're sold byinsurance agents.
(01:52):
They can be a very, very goodinstrument, and today we'll talk
about the customizing of thatinstrument through the use of
annuity riders.
Speaker 4 (02:01):
I really love to customize stuff, like I have
this really cute customizedphone case that I just love.
Speaker 2 (02:07):
Yeah, me too.
I got some major mods done onmy truck.
It's kick-ass actually.
Here's the annuity stuffcovered in episodes one and two.
Speaker 1 (02:22):
So on previous episodes episode one and two of
this season we tackled annuitiesin the first episode, sort of
discussing what each of thethree main categories of
annuities are, how they operateright.
Fixed annuities grow throughexposure to essentially high
quality bond portfolios that theinsurance company manages.
Variable annuities, much likeyour 401k, where you put your
(02:44):
money in the annuity contractand then you invest that money.
You make decisions around whatinvestment funds you want to put
your money into in order togrow that money within the
annuity itself.
And then, lastly, the indexedannuity.
That's where we're not trulyquote unquote investing our
money in an index, a marketindex like the S&P 500, we're
(03:12):
simply declaring that we'regoing to monitor that index, how
it performs over the course ofthe next 12 months my annuity
contract year.
And if that index ends upturning in a positive return, my
annuity gets to grow by somedollar amount.
And if it loses, if it has anegative return there in that 12
month contract year, guess what?
My annuity contract valuereceives a zero.
It doesn't experience negativemarket return.
(03:35):
So, three different categorieswe talked about in the first
episode with Mark, our wonderfuland beautiful co host, and the
next one we talked about reallygot into the expenses of the
different annuities right.
How much does it cost for afixed versus a variable versus
an index and so forth?
This time around, as wepromised, we're going to focus
(03:58):
on the riders or the feature ofannuities that make them highly
customizable, especially forretirement planning.
Speaker 4 (04:10):
How should?
Speaker 1 (04:11):
we approach the rider topic.
I think how we come at this iswe take it from at the starting
point, 30,000-foot level.
Look, if you type up and searchannuity riders, you're going to
come upon a whole bunch ofdifferent kinds of riders.
Easily a list of 20 riders canbe gathered together and those
(04:32):
20 riders are going to trulyfocus in on a couple different
features of annuities.
A main feature is deliveringfuture income and the promises
and guarantees that come withthat income.
Another feature is sort of theestate planning component to
this, the identifyingbeneficiaries and making sure
(04:54):
that maybe income that I'mreceiving in retirement will
continue beyond my death andcontinue to pay my spouse or
continue to pay my beneficiaryto the annuity.
So an estate planning componentof annuities.
There are riders that come withthe annuity that help you
achieve that type of planninglevel.
And then there's usually, oh,one out of the 20 riders that
(05:20):
address access to the fundsinside your annuity during that
all important early years ofownership, surrender fees,
schedules, penalty fees,whatever you want to call it.
So lots of riders when it comesto income.
Lots of riders when it comes todisability, chronic illness,
(05:42):
long term care, disability,chronic illness, long-term care.
A handful of riders when itcomes to estate planning and
passing the assets of theannuity on to your loved ones,
heirs, and so forth, and thenusually one, maybe two riders
that offer access to yourcontract value without penalties
during those early years, thosesurrender period, years of
(06:05):
ownership.
Speaker 4 (06:10):
Next up is the list of 20 annuity riders.
He's going to rattle them offfor your enjoyment.
But to skip the list of 20,fast forward to seven minutes 24
seconds and you're welcome.
Speaker 1 (06:23):
All right, so I'm going to go through the 20
riders that are out there.
You might even have them inyour own annuity right now, but
real quick.
Guaranteed lifetime withdrawalbenefit rider GLWB.
Two.
Death benefit rider.
Three long-term care rider oryou might even see it as a
chronic illness rider.
Four cost of living adjustmentrider or you might even see it
(06:44):
as a chronic illness rider forcost of living adjustment rider.
Or cola cola rider.
Five.
Enhanced income riders.
Six.
Return of premium rider.
Seven.
Income accelerator rider.
Eight terminal illness rider.
Nine nursing home waiver rider.
10.
Market value adjustment rider.
11.
Critical illness rider.
(07:05):
12.
Disability income rider.
13.
Joint life rider.
14.
Index participation rate rider.
15.
Spousal continuation rider.
16.
Income for life rider.
17.
Step up rider.
18.
Inflation protection rider.
19.
Survivorship rider.
20.
Flexible withdrawal rider.
(07:26):
That's that one rider thatgives you access to your
contract value.
That's a lot.
Speaker 2 (07:32):
Things are so much clearer why I love cliff notes.
Speaker 1 (07:34):
So, yeah, that's a lot of riders to kind of get
your hands around right 20riders, and there, believe me,
are other riders out there, nodoubt, oh my God, we're kidding,
we kid around.
Speaker 4 (07:44):
We are so good with 20.
Speaker 3 (07:45):
Is an annuity, a sort of silver bullet solution?
Speaker 1 (07:48):
It's not surprising that when you're talking to a
financial advisor that workswith annuities, that when you
present your goals, yourconcerns, your aspirations and
so forth, there is a rider outthere that, from a retirement
planning standpoint, they mightbe able to help solve that.
Speaker 4 (08:10):
You're saying solve meaning to transfer financial
risk out of my hands and intothe insurance company's hands.
Just wanted to clear that up.
Speaker 1 (08:19):
Continue, please.
So don't be surprised if anannuity can do multiple things
within a person's world offinance because of these riders,
as well as the options of howyou want that engine to propel
the annuity down the road,whether it's the fixed or
variable or indexed annuityPretty, pretty cool stuff.
(08:41):
We've been at this big bigmacro level.
Let's now step down just asmidge and let's just focus on
five riders, some of the mostsold riders or purchase riders
out there today.
All right, so five top ridersthat you'll probably encounter
(09:06):
in the market today.
So that first rider wasguaranteed lifetime withdrawal
benefit.
Rider Fees on that can run youanywhere from 0.5% all the way
up to 1.5%, and really, when Isay fees, oh boy, oh good.
Speaker 3 (09:20):
I am glad we're talking about this now, ahead of
all the riders.
Speaker 2 (09:23):
What's the over-under for time on this little tangent
?
Speaker 1 (09:25):
And really, when I say fees regarding riders,
anytime there's a fee associatedwith a rider, you're looking at
that fee being charged againstthe value of the annuity
contract itself.
That's the value that if yousurrender your annuity contract,
that's the amount of money thatyou can walk away with less any
(09:49):
.
You know surrender fees and soforth.
That's an important value.
So if you're buying a rider andit costs you 1% a year and
there's 100,000 in that annuitycontract, you're looking at
$1,000 a year being paid for therider's promises and guarantees
.
That's real money.
(10:09):
Think of it as why annuitycontract will go backwards.
One is variable annuityperformance, negative
performance.
My account value can drop basedon negative performance, but it
also will drop in the fixedvariable or indexed annuity
account.
It will drop due to expenses,fees associated with riders and
(10:31):
other things.
Now I realize I just went on atangent, but important tangent
nonetheless.
Looking back at that guaranteedlifetime withdrawal benefit
rider.
Speaker 4 (10:41):
So why is the GLWB rider the most sold rider today?
Speaker 1 (10:44):
And I think the answer is it's not only sold but
it's wanted, it's desired outthere because it's solving a key
fear associated with retirement, and that fear is the fear of
outliving one's money, outlivingthe amount of money being
mailed to my mailbox every monthso that I can go cash a check
(11:06):
or have it depositedelectronically in my bank
account so when I go to thestore I can still buy groceries.
As a very basic example, theseguaranteed minimum benefit
withdrawals, guaranteed lifetimewithdrawal benefits, guaranteed
minimum income, those types ofbenefits truly are there to
(11:26):
solve one fear the fear aboutliving your money, your income.
And, by the way, it's probablythe number one message that's
being marketed out there insocial media.
I see those all the time Withregards to retirement and
leading people to the annuitysales desk annuity sales desk.
Speaker 2 (11:46):
Gotcha, the GLWB and writers like it are all about
retirement income payments.
Speaker 1 (11:57):
What's next?
Next most purchased annuitywriter out there is going to be
the long-term care or thechronic illness writer.
Every insurance carrier hasnames for their things that they
do and they can mean very muchthe same thing like long-term
care and chronic illness.
Those writers are out there.
They're highly sought after.
A big reason why annuities worktoday is because of those types
of writers.
And once again these writerssolve a leading fear for
(12:20):
retirees, which is encounteringsome illness that is chronic
that over time leaves themreliant upon others just for
living the daily life of aregular old person.
Third rider death benefit rider.
(12:40):
This rider ensures that thebeneficiary will receive what is
?
Speaker 3 (12:44):
I put $100,000 into an annuity.
I take some money out of theannuity.
My beneficiaries get whateveris left over.
No surprise there.
Speaker 1 (12:53):
This rider ensures that the beneficiary will
receive a specific amount uponthe annuitant's death.
Oh, you are totally wrong.
Often the greater of theaccount value or some guaranteed
minimum, whichever is higher.
Once again, example of a deathbenefit.
Let's work with that real quick.
So if I invest $100,000 into aannuity contract and I, let's
(13:17):
say, have a right and I buy adeath benefit rider, maybe my
death benefit rider says look,I'll give you a guaranteed
minimum death benefit of$100,000.
But the catch is I know you put$100,000 in the catch is, if
your contract happens to be lessthan $100,000, let's say it's
(13:38):
$50,000, and you die, yourbeneficiaries will pay them that
$100,000.
That's what we're on the hookto do and we'll do that for you
so that you can still use someof that annuity money in
retirement.
But at a certain point when youpass, if there's money left in
that contract, the death benefitrider will actually increase
(14:00):
the amount of money mybeneficiaries would receive.
Pretty cool.
In fact, there are other ridersthat maybe give you a little
bit of an expansion to thatguaranteed death benefit.
Maybe they give you a 20% bonuson the amount you purchased the
contract with.
So in this example, put $100,000in.
Now my guaranteed death benefitis $120,000.
(14:21):
So that's how death benefitswork generally speaking.
Benefit is 120.
So that's how death benefitswork generally speaking, and for
those that might be noninsurable from due to health
benefit or health issues, forthose that might be non
insurable because they havehealth issues and they can't get
life insurance.
Well, putting money into anannuity with a death benefit
(14:41):
rider may be a small way in,let's say, providing for an
inheritance to loved ones whilestill being able to use some of
the money in that annuity foryour own purposes while you're
still around and still kicking.
These riders are going to beriders associated with someone's
(15:02):
thinking around estate planning.
I want to leave my loved ones,I want to leave my spouse
economic benefit within thisannuity, and so in this case,
I'm going to make sure theannuity has a death benefit
rider that allows me to do that.
We come back to what amount andwhat does a small print say
with regards to that deathbenefit rider?
(15:23):
But it is amongst the topriders out there.
Speaker 3 (15:31):
You've discussed the first, second and third most
used annuity riders out there.
What's next?
Speaker 1 (15:36):
Fourth, cost of living adjustment rider, or COLA
C-O-L-A.
These riders, and riders likeit, are associated with
increasing the amount of incomethat's paid to me from my
annuity every year.
Once I tell the annuity I'mready to get paid my income.
I'm retired now and I want myannuity to begin paying me an
(15:59):
income stream for the rest of mylife and if I have a cost of
living adjustment on that, thatmeans that my I don't know
$10,000 this year of income frommy annuity will go up by 2.5%
next year.
Whatever that changes 3%.
It may be based on the consumerprice index.
It may be a fixed amount thatit increases by consumer price
(16:23):
index.
It may be a fixed amount thatit increases by, but nonetheless
the point is it increases theamount of money that's being
paid into my household for me tolive on in retirement.
For me, the Cola Rider is alwaysgoing to be this stairwell on a
piece of paper, just that itlooks like a stairwell, and
every year each step representsthe new year's payment to me a
(16:44):
little bit bigger than it waslast year for the rest of my
life.
One of the things on the ColaRider to just be aware of is
that if you elect that, you knowthey'll show you the income
projection without the ColaRider and then they'll show you
the income projection with theCola Rider.
Don't be surprised if yourinitial years of payouts from
(17:04):
your annuity are higher if thecost of living adjustment rider
isn't applied or used, whereasif you use the cost of living
adjustment rider, oftentimesyou'll see the payment in the
initial years are lower and overtime they ramp up.
So there's sort of a break-evencalculation you can arrive at
(17:27):
figuring out how much would Ireceive before age 82, I'm
making this up in retirementincome if I take the non-cola
rider versus the cola riderschedule of payments.
It's a good method of math touse to help you ascertain
whether one is better than theother and so forth.
Speaker 3 (17:47):
I did some quick inflation math Using your
$10,000 of annual income example.
If inflation averages 3% peryear, the income for life would
need to grow to 13,000 in 10years and over 18,000 in 20
years, and that's just to keepup with inflation.
Speaker 2 (18:06):
Wow, I can definitely see why a person would want to
transfer at least some of thatrisk, and I'm getting a better
feel for how you can customizeannuities as well, which is
pretty flippin' cool actually.
Speaker 4 (18:15):
If you two are done with your calculators.
By my count, folks, we are atthe fifth most purchased rider.
We should get a drum roll orsomething.
Speaker 1 (18:24):
And the last one, similar to the fourth, which is
enhanced income rider.
Again trying to solve the sameproblem how do I increase the
amount of income I can get outof my money?
And so what's the difference?
Right, what's the differencebetween the inflation protection
riders versus an enhancedincome rider?
(18:44):
Well, think of it this way theinflation protection rider is
going to increase the incomebenefit amount paid to me, the
annuitant of the annuity, whenI'm in retirement.
When I turn that faucet on andthe paychecks start coming every
year, that paycheck will grow,by our early example, by two and
(19:06):
a half percent.
With an income enhanced riderexpands the income that the
annuity promises to pay me.
So if I buy the annuity withoutanything on it, maybe the
annuity says look, I'll pay you4% of the contract for the rest
of your life.
When that date comes and Kelly,you tell me turn my income on.
(19:26):
I'm in retirement, I'm ready toreceive some cash.
But, kelly, just so you know,if you buy this enhanced income
rider, it won't be $4,000 thatwe'll send you, it'll be $6,000
that we'll send you.
Huh, it's pretty good.
That's a 50% increase in theincome.
And you know, when you multiplythat over the course of 10, 20,
(19:47):
30 years.
That's a lot of money comparedto what you put into the annuity
contract.
All true statements.
The one thing that we want toremember when we're looking at
these riders and solving forconcerns that we have or fears
that we have in retirement andrunning out of money that $4,000
or that $6,000 getting paid tothe household year in and year
(20:09):
out will face that inflationmath that the group was just
doing earlier.
So keep that in mind.
You might consider when you'relooking at that annuity.
You might consider looking atit with well, that $4,000 to
$6,000 increase, that tastespretty good.
That's a 50% increase.
I know by math that's a goodnumber, 50% increase.
(20:32):
But I know that over 10, 20, 30years of retirement that $6,000
will not buy as much as it didat the beginning of my
retirement.
So maybe I need to solve forsome cost of living adjustment
mechanism to the income that'sbeing paid to me and enter the
(20:55):
opportunity to talk about costof living adjustment rider.
So you see how when you layersome of these riders together,
it makes perfect sense.
Just be aware of the cost ofall of this quote unquote
security and peace of mind thatcan be built with the annuities
and what are people doing withthem?
They're attempting to customizethe money that they're
(21:19):
investing in the annuitycontract and the income side of
that money down the road inretirement.
They're customizing it based onthe type of riders they're
purchasing and adding to thatannuity to create reliability
with regards to income inretirement retirement.
(21:49):
I feel like you've missedsomething important.
I would be remiss not to talkabout another oftentimes rider
or option within annuity landand we're going to call this
option the bonus option.
What I mean by that isannuities offer bonuses.
Sometimes they bonus theinvestor up front with some
dollar value that expands thevalue of the annuity contract.
(22:10):
It might be a bonus on a indexcrediting strategy within an
index policy or index annuitywhere, with that strategy, you
have the opportunity to have alarger credit occur within your
annuity, where, with thatstrategy, you have the
opportunity to have a largercredit occur within your annuity
contract, or even indexuniversal life policy, by the
way.
So the bonuses exist andthey're out there.
(22:31):
So let's make sure that we'reunderstanding what that bonus
does.
So on one end, the bonus addsreal money quote, unquote to
your contract value.
If I had a 20% annuity bonus, Imight put $100,000 in the
annuity contract and on paper,with the 20% bonus somewhere on
my statement, there would be$120,000 value.
(22:53):
That's my money plus the bonusmoney.
But here's the little devil inthe detail is you always want to
find out in that example, whendoes that $20,000 of extra money
become all mine?
When do I own it outright?
So it's a vesting schedule,meaning that over time, little
(23:15):
by little, a percentage of that20 grand becomes mine.
Meaning that if I surrender mycontract, I take all my marbles
and I leave the game, so tospeak.
I will get the contract valueplus the vested amount of the
bonus I've earned thus far, lessany surrenders and all that
other stuff.
That's what I'm walking awayfrom the contract with.
(23:36):
So how long does it take forthat schedule to be vested?
One, two, when it comes to kindof an index crediting strategy
bonus, it's going to be a cost,there's going to be an at-a-cost
question and sometimes thatat-a-cost might include some
exposure to loss regardinginvestment performance.
(23:58):
And remember, an index annuityis, you know, zero's your hero.
So be weary of the bonuses, thecost to them, and when does the
money truly become mine anddoes it expose me to downside
investment performance risk if Iwere to purchase this rider
bonus whatever for theopportunity for an increased
(24:21):
return.
It's one of the main waysinsurance agents win new annuity
investors or annuity clientsaway from old insurance annuity
carriers is through bonusactivity.
Speaker 3 (24:36):
So what are the costs of these riders?
Speaker 1 (24:37):
Yeah.
So that's a great question whatare the costs of these riders
I'm going to give you just kindof a bandwidth here rather than
each individual rider itself.
So really you're looking atcosts that'll range anywhere
from a half of 1% all the wayupwards of 1.5%, depending on
the rider, depending on theinsurance carrier.
You want to read the smallprint and you also want to.
(25:00):
If you're thinking about buyingan annuity and looking at some
of these riders as geez, a greatway to customize once again
your retirement income planning.
You might want to compareriders between carriers and find
that maybe some are lessexpensive and maybe, just maybe,
they offer you a little bitbetter deal quote unquote on
(25:20):
your money at hand.
Just keep your eyes out, yoursniffer down and you'll see them
where you need to see them.
It's all in small print.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
(25:41):
can have some facts?
Remember we're here to help younavigate through the financial
fog and come out the other sidewith a clear head.
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
(26:04):
Upbeatio for providing thegroovy theme music that's been
setting the tone for our season.
Two adventures Got a topic youwant us to tackle or a financial
myth you're curious about.
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
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