In one annuity prospectus filed with the SEC, the income rider costs 1.50% of the benefit base a year, the contract allows up to 2.00%, and the insurer states that the base "cannot be withdrawn in a lump sum or paid as a death benefit" (SEC EDGAR prospectus, April 27, 2026).
What an income rider is, in plain words
A guaranteed lifetime withdrawal benefit (GLWB) is an optional feature added to a deferred annuity for an extra charge. It lets you withdraw a set amount each year for life, even if your account value falls to zero, and unlike turning the contract into an annuity payout, you keep access to the remaining account value (American Academy of Actuaries, Fixed Indexed Annuities: Product Mechanics and Risk Management, February 2026, pp. 5 and 11). The same paper calls it one of the most popular optional features on fixed index annuities.
An income rider tracks two separate numbers:
- The account value: your real money. It is what you can withdraw, what you get on surrender (less any charges), and usually what heirs receive.
- The income base (also called the benefit base or GLWB base): a calculation number. Your yearly income equals the base times a withdrawal percentage set by your age when income starts.
The SEC gives a simple example: a benefit that lets you withdraw up to 6% of your purchase payments each year for life, even if the contract value reaches zero (SEC Investor.gov, Variable Annuities, checked October 14, 2026).
How it is usually described, and what the contract says
The pitch is often "your money grows 7% guaranteed" or "a guaranteed 7% roll-up." That rate applies to the income base, not to your account value. One 2026 prospectus spells out how its version works: a 5.00% roll-up added to the base each year for the first 10 years, figured on the original deposit (simple, not compound), and only for years with no withdrawals (SEC EDGAR, annuity prospectus with a lifetime withdrawal rider, April 27, 2026).
The same prospectus states that the base "cannot be withdrawn in a lump sum or paid as a death benefit" and that withdrawals under the rider "will reduce your Account Value and death benefit" (same source). In other words, the income is paid out of your own account first. The insurer's money comes in only if your account runs out while you are still alive.
The fee is charged on the base, not on your account. In that prospectus the current rider charge is 1.50% of the base each contract anniversary, the maximum is 2.00%, the charge is taken from the account value, and the rider is issued with the contract and cannot be cancelled by the owner (same source). Because the base grows with the roll-up while the account may not, the fee can become a larger share of your real money each year. That prospectus covers a registered index-linked annuity; fixed index annuity riders are filed with state regulators, so ask for the charge in writing.
Withdraw too much and the guarantee shrinks. The SEC warns that optional benefits may be significantly reduced if you take withdrawals over a certain amount or before a certain age (SEC Investor.gov, Variable Annuities, checked October 14, 2026).
The trade-offs to weigh
- Fees for years before income starts. If you wait 10 years to turn on income, you pay the rider charge for 10 years first.
- Lower crediting. Insurers that offer riders on indexed annuities still set caps and participation rates, which can be lowered after the first term down to the contract minimum (SEC, Updated Investor Bulletin: Indexed Annuities, July 31, 2020). The rider charge comes out of what is credited.
- Surrender charges usually apply at the same time. See surrender charges.
- Taxes on withdrawals from an annuity follow the annuity rules, not the rider's labels. See how annuities are taxed and check with a tax professional.
The SEC's advice on any paid feature applies here: carefully consider whether you need it, and whether you can buy the benefit more cheaply another way (SEC Investor.gov, Variable Annuities, checked October 14, 2026).
When an income rider can make sense
An income rider buys insurance against one specific risk: living a long time after a bad run of markets or low crediting. It can make sense for someone who wants lifetime income but wants to keep access to the account and leave whatever is left to heirs, which an immediate annuity usually does not allow. It also appeals to people worried about sequence of returns risk.
The fair comparison is a plain single premium immediate annuity (SPIA), which turns a lump sum into income for life with no rider charge, but gives up access to the lump sum. Ask for a SPIA quote for the same age, the same start date and the same payout option, then compare the yearly income, what heirs could receive, and how long until the insurer's own money is at risk. See also turning a 401(k) into monthly income.
How to check
- Ask for the rider page of the disclosure document, the charge as a percentage of the base, the maximum charge, and the withdrawal percentage table by age. If the disclosure and Buyer's Guide come after the application, the national model rule gives at least a 15-day free look (NAIC Model 245, Annuity Disclosure Model Regulation, Summer 2021, Section 5). See the free-look period.
- Look up the insurer with NAIC Consumer Insurance Search and confirm the seller's license with your state insurance department.
- For variable or registered index-linked annuities, read the prospectus fee table and check the seller on FINRA BrokerCheck.
A plain example with numbers
All figures are hypothetical, chosen to show the arithmetic, not any product. Assume a $400,000 deposit, a 7% simple roll-up on the income base for 10 years, a 1% yearly rider charge on the base, an assumed 3% credited to the account each year, and income of 5% of the base starting in year 11.
| Year | Income base (not withdrawable) | Account value after 1% fee on base | Same account, no rider | Income paid so far |
|---|---|---|---|---|
| 0 | $400,000 | $400,000 | $400,000 | $0 |
| 1 | $428,000 | $407,720 | $412,000 | $0 |
| 5 | $540,000 | $438,101 | $463,710 | $0 |
| 10 | $680,000 | $474,838 | $537,567 | $0 |
| 15 | $680,000 | $333,855 | n/a | $170,000 |
| 20 | $680,000 | $170,417 | n/a | $340,000 |
| 24 | $680,000 | $21,113 | n/a | $476,000 |
| 25 and later | $680,000 | $0 | n/a | $34,000 a year, now from the insurer |
The arithmetic: after 10 years the base is $400,000 plus 7% of $400,000 times 10, or $680,000. Income is 5% of $680,000, or $34,000 a year. Each year the account grows 3%, then loses the $6,800 rider charge (1% of $680,000) and the $34,000 withdrawal. In year 1, for example, $400,000 times 1.03 is $412,000, minus a $4,280 charge (1% of $428,000) leaves $407,720.
At year 10 the statement shows a $680,000 base, but the money you could actually withdraw is $474,838 before any surrender charge. The rider charges have cost about $62,700 compared with the same account without the rider. In this example the first 14 income payments, $476,000, all come out of your own account. The insurer's own money starts in year 25, which matters most if you live well into your 80s or 90s.
Red flags
- "Guaranteed 7% growth" without saying it applies only to the income base.
- A statement or illustration that shows the income base more prominently than the account value.
- A rider charge quoted as a percentage without saying it is figured on the base, not the account.
- No mention of the maximum rider charge the contract allows.
- Buying an income rider when you have no plan to take lifetime income from this contract.
- A roll-up that stops in any year you take a withdrawal, not explained up front.
- Excess withdrawal rules that can cut the guarantee, glossed over.
- No comparison with an immediate annuity quote for the same age and income start date.
- A rider bought on money you may need within the surrender period.
- An income bonus presented as if it were part of your cash value.
Questions to ask before you sign
- What is the rider charge, is it figured on the income base or the account value, and what is the maximum the contract allows?
- Is the roll-up simple or compound, on what amount, for how many years, and does it stop if I take a withdrawal?
- What is my withdrawal percentage at the age I expect to start income, single and joint?
- What will my account value, not my income base, be in 10 years at the guaranteed minimum crediting?
- What counts as an excess withdrawal, and what does it do to my guaranteed income?
- If I die, what do my heirs receive: the account value or something else?
- Can I drop the rider later and stop paying the charge?
- How many years of income would come from my own account before the insurer's money is used, under your illustration?
- What would a single premium immediate annuity pay me for the same money, age and start date?
- What do you earn on this sale, in dollars, with and without the rider?
- How long is my free-look period in my state?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. Questions to ask about the income base, roll-up, rider charge and excess withdrawals before you add an income rider. We’ll email it to you.
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Sources
- SEC EDGAR: annuity prospectus with a guaranteed lifetime withdrawal benefit rider, fee table and rider supplement dated April 27, 2026 (issuer not named on this page)
- American Academy of Actuaries: Fixed Indexed Annuities, Product Mechanics and Risk Management (February 2026)
- SEC Investor.gov: Variable Annuities (checked October 14, 2026)
- SEC Investor.gov: Annuities (checked October 14, 2026)
- SEC Office of Investor Education and Advocacy: Updated Investor Bulletin: Indexed Annuities (July 31, 2020)
- NAIC: Model 245, Annuity Disclosure Model Regulation (Summer 2021)
- NAIC: Consumer Insurance Search (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.