A client, age 45, is seeking an investment that provides tax-deferred growth and supplemental income in retirement, but they are concerned about market downturns negatively impacting their investment principal. They are looking for a feature that guarantees their initial investment will not be lost. Which variable annuity rider would be most suitable for this client?
- AGuaranteed Minimum Withdrawal Benefit (GMWB)
- BGuaranteed Minimum Income Benefit (GMIB)
- CGuaranteed Minimum Accumulation Benefit (GMAB)
- DStepped-Up Death Benefit Rider
Show answer & explanationAnswer & explanation
Correct answer: C. Guaranteed Minimum Accumulation Benefit (GMAB)
The client's primary concern is protecting their 'initial investment' from market downturns, ensuring it 'will not be lost.' The Guaranteed Minimum Accumulation Benefit (GMAB) rider provides a guarantee that the annuity's account value will be at least a certain percentage of the initial investment (or highest anniversary value) after a specified period, regardless of market performance.
Why the other options are wrong
- A. GMWB guarantees the ability to withdraw a certain percentage of the principal annually, even if the account value drops to zero, but doesn't guarantee the entire principal's accumulation value.
- B. GMIB guarantees a minimum income stream, not the principal itself.
- D. A stepped-up death benefit rider increases the death benefit, not the living benefit or principal protection during accumulation.
Guaranteed Minimum Accumulation Benefit (GMAB)
A variable annuity rider that guarantees the annuity's account value will be at least a certain percentage of the initial investment (or highest anniversary value) after a specified period, protecting the principal from market downturns.
- Protects against market losses affecting principal
- Guarantees a minimum account value at a future date
- Applies during the accumulation phase
- Often comes with additional fees
Memory trick: GMAB keeps your 'nest egg' from getting smaller, no matter what.