Layin' It on the Line: What is an income rider and how does it work?

An income rider is a feature that can be added to an annuity contract that provides you with the option to receive periodic payments, known as "income payments," from your annuity in addition to any principal and interest payments you may be entitled to receive. The income payments are typically based on a percentage of the value of your annuity account balance, and they may be paid to you on a monthly, quarterly or annual basis.

To use an income rider on an annuity effectively, it's important to consider your financial goals and needs. Here are some tips on how to use an income rider on an annuity:

1. Determine your income needs: Before you choose an income rider, consider how much income you will need to meet your expenses in retirement. This will help you determine the appropriate level of income payments to request from your annuity.

2. Understand the terms of the income rider: Make sure you understand the terms of the income rider, including the percentage of your account balance that will be used to calculate your income payments, the frequency of the payments, and any restrictions or limitations on the income payments.

3. Consider your other income sources: When planning for retirement, it's important to consider all of your income sources, including Social Security, pensions and other investments. An income rider on an annuity can be a useful supplement to these other sources of income, but it's important to make sure you have a balanced approach to retirement planning.

4. Review your options regularly: Your income needs may change over time, so it's important to review your income rider and other retirement income options regularly to make sure they continue to meet your needs. This may involve adjusting the amount of income payments you receive or making other changes to your retirement income plan.

5. Guaranteed income: An income rider can provide a guaranteed source of income that you can count on in retirement. This can be especially useful if you are concerned about outliving your savings or if you have a fear of market volatility.

6. Flexibility: Income riders may offer a variety of payment options, such as monthly, quarterly or annual payments, allowing you to tailor the income payments to your specific needs.

7. Potential for growth: Depending on the terms of the income rider, your income payments may be based on the value of your annuity account balance, which may grow over time if the annuity earns interest. This means that your income payments may increase over time, providing potential for growth in your retirement income.

8. Potential for tax advantages: Annuities may offer tax advantages, including tax-deferred growth on earnings and potentially tax-favored treatment of income payments.

9. Estate planning benefits: An annuity with an income rider can provide a source of income for your beneficiaries after you pass away, potentially helping to protect your loved ones financially.

It's important to keep in mind that income riders may have fees and restrictions, and they may not be suitable for everyone. Be sure to carefully review the terms of an income rider before adding it to your annuity contract.

Lyle Boss, a native Utahn, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.