Optimal Life-Cycle Allocation

A guaranteed lifetime withdrawal benefit (GLWB) is also referred to as a guaranteed minimum withdrawal benefit for life. The GLWB is an optional “living benefit” guarantee that can be embedded into a variable annuity product. The GLWB allows the contract holder to, at a minimum, withdraw a fixed percentage of the total annuity premiums each year regardless of market performance. The income payments are guaranteed for life. The GLWB does not require annuitization. For example, Catherine invests $150,000 into a variable annuity and selects a GLWB that provides 4% annually. The capital markets have performed terribly and as a result the variable annuity contract value is only $75,000 at the end of 10 years. Catherine is in a good position though because she will receive $6,000 ($150,000 x 4%) per year for the remainder of her life. This lifetime income is guaranteed and is not limited to the amount of the initial $150,000 premium payment.