On the other hand, adding an income-guarantee rider to an insurance policy might provide greater flexibility, but at what cost? "Income-benefit riders have become a popular alternative to annuitization because they provide a guaranteed stream of income that often exceeds the actual accumulation value of the contract, without locking the annuity owner into an irrevocable payout schedule," says Neamtz. "Contract owners will therefore receive a fixed monthly payment that still permits them to withdraw any remaining balance, minus any applicable surrender charges or fees."
Whether or not that option makes sense for a particular client may depend on how much is saved in other assets. "If, for example, you have other liquid savings elsewhere, annuitization may be an appropriate choice because you have other assets to draw upon in the event of an emergency," he says. "It is obviously not wise to convert all your savings into an irrevocable cash flow, even if doing so would provide the greatest possible return on investment."
Stolz might agree. "The key advantage to the rider is that you maintain liquidity," he says. "However, this liquidity comes at the cost of less income guaranteed for life. Essentially, that’s the tradeoff."