Guaranteed Minimum Income Benefit

Example

“Even though the stock market crashed and reduced her annuity account value by 40%, Patricia's guaranteed minimum income benefit ensured she still received her full $3,000 monthly retirement payment.”

Memory Tip

Think 'Income Insurance' - it insures your retirement income against market crashes, like a financial floor that won't let you fall below a certain level.

Why It Matters

This benefit provides crucial retirement security by protecting against sequence of returns risk, where market losses early in retirement can devastate lifetime income. It allows retirees to invest more aggressively while maintaining income certainty.

Common Misconception

People often think this benefit costs nothing extra or that it guarantees account value growth. In reality, these riders typically cost 0.5-1.5% annually and only guarantee income payments, not account values, which can still decline with market losses.

In Practice

Robert invests $500,000 in a variable annuity at age 65 with a guaranteed minimum income benefit rider costing 1% annually. The rider guarantees 5% of his initial investment ($25,000) in annual income for life starting at age 70. Even if market losses reduce his account to $300,000 by age 70, he still receives $25,000 annually. If markets perform well and his account grows to $700,000, his income benefit might increase to $35,000 annually.

Etymology

Combines insurance terminology where 'guaranteed' ensures certainty, 'minimum' from Latin 'minimus' meaning smallest amount, and 'benefit' from Latin 'benefactum' meaning good deed or advantage.

Common Misspellings

Related Terms

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