NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesMedium
A 60-year-old client is retiring next year and wishes to maximize their guaranteed lifetime income from their accumulated retirement savings while retaining some flexibility for emergencies. They are concerned about market volatility impacting their income. Which of the following annuity features would be most suitable?
- AA variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB)
- BA single premium immediate annuity (SPIA)
- CAn equity-indexed annuity with a surrender charge period exceeding retirement
- DA deferred variable annuity with no riders
Show answer & explanationAnswer & explanation
Correct answer: A. A variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB)
A variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider allows the client to invest in the market for growth potential while guaranteeing a minimum income stream for life, regardless of market performance. This addresses concerns about market volatility and provides flexibility.
Why the other options are wrong
- B. A SPIA provides immediate income but offers no market participation or flexibility for emergencies, as the principal is annuitized.
- C. An equity-indexed annuity offers limited market participation and a long surrender charge period could restrict access to funds, which is not ideal for emergency flexibility.
- D. A deferred variable annuity without riders offers no guaranteed income and exposes the client fully to market risk.
Guaranteed Lifetime Withdrawal Benefit (GLWB)
A rider on a variable annuity that guarantees a certain percentage of a 'benefit base' can be withdrawn annually for life, even if the underlying account value drops to zero.
- Provides guaranteed income for life.
- Allows participation in market growth through underlying investments.
- Benefit base often steps up with market gains but doesn't decline with losses.
- Offers flexibility as the principal remains accessible (though withdrawals reduce the benefit base).
Memory trick: GLWB: It's like a guaranteed 'W'ithdrawal for 'L'ife, even if your 'B'alance goes down.