Most people know that annuities can be great tools for stretching retirement savings and generating returns, but a lot of people don’t realize that there are major supplementary benefits hidden in the form of annuity riders.

Annuity riders are added features that can be built into your annuity contract to provide benefits ranging from income guarantees to cost-of-living increases. Each individual rider has the ability to help your retirement savings go the distance. Let’s take a look at some of the more popular choices.

Nursing Home/Long-Term Care Rider

If you need the assistance of a home healthcare provider or need to move to a nursing home and Medicare isn’t covering the expense due to its non-medical nature, you may be forced to tap into your annuity in order to pay for the care. But accessing your principal can trigger surrender charges and fees, effectively reducing your future payouts, unless you have a nursing home rider. A nursing home rider allows for an increased annuity payout once you need care, or it can allow you to access the value of your annuity without penalty. This provides tremendous freedom and ensures that your much-needed funds aren’t lost to penalties and surrender charges.

If you already have a long-term care policy, remember that the nursing home rider can work in concert with the policy. It can pay for the expenses accrued during the policy’s waiting period and can pay costs that exceed the policy’s daily, annual or lifetime limits.

Cost of Living Adjustment Rider

If there’s one universal threat to retirement security, it’s inflation. When the cost of the goods and services you routinely need increases and it takes more of your savings to pay for them, your retirement funds become even more limited. Since inflation is generally expected each year, it can feel like you’re powerless against it. But with a cost-of-living adjustment (COLA) rider added to your annuity, you can get an increased income from the annuity in order to combat these higher prices.

Basically, the COLA rider allows your annuity income to be increased by a set percentage each year, thus allowing it to keep pace with inflation. Adding the rider may create smaller payouts in early years, however, so make sure you fully understand how the rider will affect your overall payout before you add it on.

Guaranteed Income Riders

Annuities offer a great way of turning savings into predictable, reliable income after retirement. When you add a guaranteed income rider to the mix, you not only have dependability, but you also have the power to increase your future income by delaying the triggering of the rider. Best of all, you don’t have to worry about your income depleting your annuity, because the guaranteed income rider provides payment for life.

Guaranteed Accumulation Benefit

While fixed and indexed annuities have built-in protections to ensure either consistent growth or protection against losses, variable annuities are riskier. Adding a guaranteed minimum accumulation benefit rider will ensure that the value of your annuity after a certain number of years meets the value of the principal deposited (less any withdrawals). This effectively erases any losses your account might suffer should the market go down. Best of all, it still gives you access to upside potential should the market rise instead of fall.

There are so many useful riders to consider for your annuity, it can get overwhelming to review them all. And since each of them does add an expense to your contract, it’s important to carefully choose those you’re likely to rely on in the future.

Be sure to contact your financial advisor to help you design the most effective annuity for your needs and your expectations—one that really helps to secure your retirement savings and your post-retirement lifestyle.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or products may be appropriate for you, consult with your financial advisor.

The Retirement Pros
November 2014