Minimum Withdrawal Benefits – Annuity Guarantees

Minimum guaranteed withdrawal benefits guarantee that you can take a certain amount from your annuity over time.

Your assets may be invested in the markets, giving you the potential for market-like gains and losses, and you do not have to irrevocably give up control of your money. Even if your investments lose money and your contract value evaporates (leaving you with a zero account balance), income does not stop.

This is part of a series on annuity guarantees.

Guaranteed Withdrawal Example

An annuity might provide a guaranteed withdrawal feature that allows you to take 7% of your total investment each year over 14 years. If you’re quick with numbers, you know that 7 times 14 is just about 100. The insurance company guarantees that you’ll get 100% of your money back over 14 years (plus a few months) no matter how investments perform.

During that time, you can always walk away (but watch out for surrender fees before you go). You don’t have to keep your money in the annuity for entire 14 years; that’s just how long you’d have to wait to get the full guarantee. Walking with your money is more attractive if your investments have done well. You can reinvest elsewhere, leave the money where it is, or spend it.

Drawbacks of Guaranteed Withdrawal Features

The main problem with guaranteed withdrawal benefits is that you have to pay for them. You rarely get anything for free, and annuity guarantees are no exception. You have to decide if you think the feature is worth the extra cost, which will erode your assets more quickly than if you didn’t have the guarantee.

It may be worth your money, or it may not. Only time will tell. Without knowing the future, you have to decide if the guarantee will make you feel better, if you can afford it, and if you’re willing to pay even if it turns out that you didn’t need it.

As with all annuity guarantees, the promise is only as strong as the insurance company. Stick with financially strong and conservative companies.