Understanding Guaranteed Lifetime Income on a Fixed Indexed Annuity (FIA)
Presented by
Marc Merritt, RVP & Marylene Teopengco-Merritt, RVP
MMT Financial and Insurance | Freedom Equity Group
Licensed NY/NJ/AZ | Nationwide Appointments Pending
Your principal is protected from market downturns. You participate in index gains without direct market risk.
Interest credits are tied to the performance of a market index (e.g., S&P 500) subject to a cap, spread, or participation rate.
Earnings grow tax-deferred until withdrawal, allowing your money to compound more efficiently over time.
An FIA is an insurance product — not a security or direct market investment.
A contractual guarantee that you will receive income payments for as long as you live — regardless of market performance.
The rider is an optional benefit added to the FIA base contract, typically for an annual fee of 0.75%–1.25% of the benefit base.
The rider tracks a separate "Income Account Value" (also called Benefit Base) that may grow through roll-up rates or index credits.
Once activated, the rider pays a guaranteed percentage of the income base every year for life — even if the account value reaches zero.
Unlike traditional annuitization, you typically retain access to your remaining account value and can pass it to beneficiaries.
Make a premium payment (single or multiple) into the FIA contract.
Income base grows via roll-up rate (e.g., 6–8% simple or compound) during deferral.
Choose to "turn on" income at a future date. Payout % is based on age at activation.
Receive guaranteed annual income for life. Joint options available for couples.
Hypothetical scenario for educational purposes only — actual results vary by carrier and product.
The guarantee doesn't depend on your individual account — it's backed by the carrier's entire financial engine.
Insurance companies pool premiums from thousands of annuitants. While some policyholders live well beyond average life expectancy, others pass away earlier. This statistical balancing act — the law of large numbers — means the carrier can predict total payout obligations with remarkable accuracy, even though individual outcomes are unknown.
Premiums flow into the carrier's General Account, which is professionally managed across a diversified portfolio of investment-grade bonds, commercial mortgages, real estate, and private placements. These long-duration assets are specifically matched to the carrier's long-term payout obligations, generating steady returns that fund lifetime income commitments.
Actuaries calculate payout rates using sophisticated mortality tables and interest-rate projections. A concept called "mortality credits" means that when some annuitants pass away before exhausting their account, those unused funds effectively subsidize payments to those who live longer — creating a self-sustaining income pool.
State insurance regulators require carriers to hold statutory reserves — capital set aside specifically to meet future obligations. These reserve requirements, combined with risk-based capital standards and regular financial examinations, ensure the company maintains sufficient assets to honor every guaranteed payment, even in adverse scenarios.
Income payments continue for life, regardless of account performance or how long you live.
Couples can elect joint income that continues for both lives at the same or reduced payout.
Unlike annuitization, your remaining account value can pass to beneficiaries upon death.
The income base and payouts are contractually guaranteed by the insurance carrier.
Many riders offer 5–8% annual growth on the income base during the deferral period.
You choose when to activate income — typically after a 1-year minimum waiting period.
Payout rates increase with age at activation — the longer you wait, the more you receive.
| Age at Activation | Single Life Payout | Joint Life Payout |
|---|---|---|
| 55 – 59 | 4.00% – 4.50% | 3.50% – 4.00% |
| 60 – 64 | 4.75% – 5.25% | 4.25% – 4.75% |
| 65 – 69 | 5.25% – 5.75% | 4.75% – 5.25% |
| 70 – 74 | 5.75% – 6.25% | 5.25% – 5.75% |
| 75 – 79 | 6.25% – 7.00% | 5.75% – 6.50% |
| 80+ | 7.00% – 8.00% | 6.50% – 7.50% |
Understanding costs and limitations ensures this strategy is right for you.
Typically 0.75%–1.25% of the benefit base, charged annually. This reduces your account value over time.
Early withdrawals may be subject to surrender charges during the initial contract period (typically 5–10 years).
Taking more than the guaranteed income amount can reduce or eliminate future guaranteed payments.
The income base is a calculation for determining income — it is NOT a lump sum you can withdraw.
Guarantees are backed by the claims-paying ability of the issuing insurance company. Always review carrier ratings.
Those with 5–15 years to deferral who want to lock in future guaranteed income while protecting principal.
Individuals without a traditional pension who need predictable, guaranteed monthly income in retirement.
Those prioritizing safety of principal and guaranteed income over aggressive market growth.
Those who want income for life but also wish to preserve remaining value for beneficiaries.
An Income for Life Rider on a Fixed Indexed Annuity provides the certainty of guaranteed lifetime income with the flexibility to leave a legacy.
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