What is a guaranteed income rider in a deferred annuity?

A guaranteed income rider in a deferred annuity is designed to provide a policyholder with a guaranteed stream of income for their lifetime, drawing on a portion of the funds in the annuity. This rider adds a layer of security for individuals looking for predictable income during retirement. Under this arrangement, the annuity may allow the owner to utilize only a specified percentage or portion of the total invested amount, providing them the ability to benefit from the income while retaining other assets for potential future use or growth.

This approach contrasts with the notion of allowing unlimited withdrawals, which could jeopardize the capital accumulation and the ability to generate income over time. The guaranteed income rider focuses on ensuring that a reliable and consistent income stream is available, irrespective of market fluctuations, thereby addressing longevity risk. It does not provide a fixed rate of return on all investments or pay out benefits solely upon death, as its primary function is to guarantee income during the annuitant’s lifetime rather than through death benefits or fixed investment returns.