Components
The Building Blocks of Variable Lifetime Income
Variable lifetime income combines insurance guarantees, investment management, and contract features to create a retirement income strategy unlike traditional investments.
And unlike many variable annuities available today, advisory variable annuities may also offer:
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No surrender charges
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Institutional investment share classes
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Transparent fiduciary compensation
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Lower insurance expenses by excluding optional living benefit riders
"It is a well-known fact that annuity contracts ... are extremely rare. Why this should be so is a subject of considerable current interest. It is still ill-understood."
— Franco Modigliani Nobel Laureate Address
Each component serves a distinct purpose, and understanding how they work together can help investors make more informed retirement income decisions.
Lifetime Income Guarantee
The defining feature of variable lifetime income is its life-contingent guarantee. Once income begins, payments continue for as long as the covered annuitant lives, transferring longevity risk from the individual to the insurance company.
This guarantee is made possible through mortality credits. Because payments end when an annuitant dies (unless additional guarantees are elected), the assets of those who die sooner help support the lifetime payments of those who live longer. This pooling of longevity risk enables life annuities to provide income that cannot be replicated through investing alone.
Payout options range from maximum initial income to maximum beneficiary protection. In general, the more guarantees elected—such as survivor benefits, refund features, or period-certain guarantees—the lower the initial monthly payment.
Assumed Interest Rate
The assumed interest rate (AIR) is one of the most important—and least understood—features of a variable income annuity.
It is not an investment return, forecast, guarantee, or fee. Instead, the AIR is a benchmark used to determine how future income payments adjust based on the performance of the underlying investment accounts.
Selecting an AIR influences both your initial payment and how future payments may change over time. The decision should be made in the context of long-term capital market expectations, inflation, and your retirement income objectives.
The available AIR options are 3%, 4% and 5%.
Payment Start Date
Variable lifetime income offers flexibility in determining when lifetime payments begin. While some insurance companies allow income to start immediately, others require a waiting period—sometimes as long as three years—before annuitization is available.
The timing of income affects the initial payment amount and should be coordinated with retirement goals and other income sources.
Professionally Managed Separate Accounts
Unlike fixed annuities, variable lifetime income is invested through professionally managed separate accounts. Depending on the insurer, investment menus range from a single private real estate account to more than 140 investment options, including index and active management, sector strategies and alternative asset classes
Insurance Costs (M&E)
Mortality and Expense (M&E) charges compensate the insurance company for providing lifetime income guarantees and administering the contract. Because these charges continue throughout the life of the contract, they are an important factor when comparing insurance companies.
Investment Platform Expense
From one insurer, it supports access to the annuity's investment platform and may provide access to institutional-priced investment options with lower expenses than comparable retail mutual funds.
Administrative Expense
Important because it can offset a favorable M&E charge. Covers the ongoing administration of your annuity contract, including recordkeeping, payment processing and customer service.
Investment Expenses
Each separate account has its own investment expenses based on the underlying investment strategy. These recurring costs vary among companies and investment options and contribute to the overall cost of providing professionally managed lifetime income.
You will find in the Compare section all current separate account investment expenses, including any temporary expense reductions. When expenses are not listed in the insurer's promotional material, you will find a copy of the Prospectus Appendix A Investment Options Available Under the Contract.
Professional Management
Professional management integrates investment selection, cost efficiency, retirement income strategy, and ongoing oversight into a coordinated approach.
Rather than focusing on any single component, successful implementation considers how each element works together to support long-term retirement income.