Q: What is the difference between an Annuitization and a GLWB or GMWB?
A: Annuitization happens when you convert your current or future account value (or Shadow fund if greater)--into an income stream. This is a final decision and once it is made there is no going back to your deferred accumulation. So be very sure that it it what you want to do.
For a GLWB, the lifetime payments are deducted from the actual account value. The guarantee by the insurance company is that, even if, as a result of these deductions, the account eventually reduces to zero, the Annuitant will continue to receive these payments until they die.
In addition, as long as there is money left in the account, it can be used or passed on to heirs. Withdrawals in excess of the guaranteed amount, however, may reduce or end the lifetime income guarantee.
If retaining access to your principal and being able to pass it on is important to you, the newer benefit may be appealing. But if your main objective is higher after-tax income, Annuitization may make more sense, at least at first.
With Annuitization, part of each payment is considered a return of principal until the entire lump-sum premium is paid back. The rest of the payment is taxable. For example, for 65-year-old man, nearly 65 percent of each payment would be tax-free for the first 20 years. For the woman, 69.5 percent would be tax-free.
By comparison, with the lifetime income benefit (GLWB), all payments are considered taxable earnings as long as the account value is greater than the original amount invested less any withdrawals.
A GMWB guarantees that of the original investment or the accumulation value, a certain percentage can be withdrawn annually, until the entire amount is depleted, so it is not a lifetime guarantee.
A: Annuitization happens when you convert your current or future account value (or Shadow fund if greater)--into an income stream. This is a final decision and once it is made there is no going back to your deferred accumulation. So be very sure that it it what you want to do.
- Payments can be set up so that they continue to a beneficiary, usually a spouse, after the original recipient dies, and/or for a minimum number of years. The more such conditions are attached, the lower the payments will be.
For a GLWB, the lifetime payments are deducted from the actual account value. The guarantee by the insurance company is that, even if, as a result of these deductions, the account eventually reduces to zero, the Annuitant will continue to receive these payments until they die.
In addition, as long as there is money left in the account, it can be used or passed on to heirs. Withdrawals in excess of the guaranteed amount, however, may reduce or end the lifetime income guarantee.
If retaining access to your principal and being able to pass it on is important to you, the newer benefit may be appealing. But if your main objective is higher after-tax income, Annuitization may make more sense, at least at first.
With Annuitization, part of each payment is considered a return of principal until the entire lump-sum premium is paid back. The rest of the payment is taxable. For example, for 65-year-old man, nearly 65 percent of each payment would be tax-free for the first 20 years. For the woman, 69.5 percent would be tax-free.
By comparison, with the lifetime income benefit (GLWB), all payments are considered taxable earnings as long as the account value is greater than the original amount invested less any withdrawals.
A GMWB guarantees that of the original investment or the accumulation value, a certain percentage can be withdrawn annually, until the entire amount is depleted, so it is not a lifetime guarantee.
