Guaranteed Lifetime Withdrawal Benefits (GLWB) Explained
A guaranteed lifetime withdrawal benefit is an optional rider that lets the owner withdraw a defined amount every year for life, even if the account value is exhausted. It is the feature most often misread on a statement, because it involves two separate numbers that behave very differently.
A guaranteed lifetime withdrawal benefit is an optional rider that lets you withdraw a set amount every year for life, even if the account value is exhausted. It is calculated from a benefit base, which is a bookkeeping figure rather than a withdrawable balance.
Key takeaways
- Account value is what you can withdraw; the benefit base only calculates the guarantee.
- The guaranteed withdrawal is a percentage of the benefit base, set largely by age at start.
- Exceeding the guaranteed amount commonly resets the benefit base, often permanently.
- The rider carries an explicit annual charge, sometimes assessed against the benefit base.
- Older riders often carry terms no longer offered, which can be the reason to keep a contract.
What is the difference between account value and benefit base?
The account value is the real, withdrawable balance. The benefit base, sometimes labelled income base or roll-up value, exists only to calculate the guaranteed withdrawal amount. It is generally not a number you can walk away with.
The account value is the real, withdrawable balance. The benefit base - sometimes labelled income base, income account value, or roll-up value - is a bookkeeping figure used only to calculate the guaranteed withdrawal amount. It is generally not a number you can walk away with.
Confusing the two is the most common error contract holders make. A statement showing a benefit base well above the account value does not mean the contract is worth that higher figure on surrender.
How is the guaranteed withdrawal amount calculated?
The rider applies a withdrawal percentage to the benefit base. The percentage depends on the age withdrawals begin and whether the election covers one life or two. Deferring the start date usually increases it.
The rider applies a withdrawal percentage to the benefit base. The percentage typically depends on the age at which withdrawals begin and whether the election covers one life or two. Deferring the start date usually increases the percentage, and many contracts also credit the benefit base with a stated roll-up during deferral.
Once withdrawals begin, exceeding the guaranteed amount in any year commonly reduces or resets the benefit base - often permanently. Excess withdrawals are the fastest way to damage a rider that took years to build.
How much does a GLWB rider cost?
GLWB riders carry an explicit annual charge, usually stated as a percentage. Some contracts assess the charge against the account value and others against the benefit base, which means the charge can grow even in a flat year.
GLWB riders carry an explicit annual charge, usually expressed as a percentage. Some contracts assess the charge against the account value; others assess it against the benefit base, which means the charge can grow even in a flat year. Read which base your contract uses - it materially changes the long-run cost.
Why can an income rider be a reason to keep a contract?
Riders issued in earlier rate environments sometimes carry withdrawal percentages or roll-up terms no longer offered. Those terms do not survive a move to a new contract, so an in-force rider is often the reason a review concludes keep.
Riders issued in earlier rate environments sometimes carry withdrawal percentages or roll-up terms that are no longer offered. Those terms do not survive a move to a new contract. When an older contract is reviewed and the conclusion is to keep it, an in-force rider is very often the reason.
Frequently asked questions
Is the benefit base money I can withdraw?
No. The benefit base is used to calculate the guaranteed annual withdrawal amount. The account value is the amount available on surrender, subject to any remaining surrender charges.
What happens if I take more than the guaranteed withdrawal amount?
Most contracts treat that as an excess withdrawal, which commonly reduces or resets the benefit base and can permanently lower the guaranteed amount going forward.
Can I cancel an income rider?
Some contracts permit cancellation after a stated period, which stops the annual charge and ends the guarantee. The contract language governs, and the decision is irreversible in many cases.