Guaranteed Minimum Income Benefit (GMIB)
What Is a Guaranteed Minimum Income Benefit (GMIB)?
A guaranteed least income benefit (GMIB) is an optional rider that annuitants can purchase for their retirement annuities. When the annuity has been annuitized, this specific option guarantees that the annuitant will receive a base value of payments consistently, paying little mind to different conditions.
Understanding Guaranteed Minimum Income Benefits (GMIBs)
A guaranteed least income benefit (GMIB) guarantees that an annuitant will receive payments paying little heed to market conditions. This base payment sum is foreordained by evaluating the future value of the initial investment. This option is only beneficial to annuitants who plan to annuitize their annuity.
The GMIB feature is typically found in variable annuities. At the point when a person purchases a variable annuity, they will browse an assortment of underlying investment options. The annuity's payments, once annuitized, will incompletely be founded on the performance of the underlying investments. Variable annuities appeal to investors since they permit annuitants to partake in market growth. In any case, market declines can bring about the annuity losing value and, consequently, lower annuity payouts.
For instance, a GMIB feature might furnish the annuity purchaser with the option to receive either a payment in light of the genuine market value of the variable annuity investment or the value of the initial investment compounding at six percent interest yearly. One more type of GMIB feature might guarantee an annuity benefit in view of the highest value the investment account at any point came to.
Different annuity suppliers might call the GMIB by various names, for example, Guaranteed Retirement Income Program, or GRIP, or Guaranteed Interest Account, or GIA.
Benefits and Disadvantages of a GMIB
The Guaranteed Minimum Income Benefit feature is one method for assisting offset the market with risking that accompanies investing in a variable annuity. By guaranteeing a base level of annuity payments paying little mind to investment performance, a GMIB feature can give additional security to retired people who plan to live on their annuity income.
Notwithstanding, add-on annuity benefits, for example, a GMIB accompany additional costs and fees, which can eat into any investment growth. Additionally, there are numerous complex factors that go into working out annuity payments, especially when a GMIB provision is involved. Consequently, it very well may be hard to compare the various options offered by annuity suppliers against one another. Variable annuities likewise offer a limited menu of investment options, which may not address the issues, everything being equal.
Features
- GMIBs are much of the time found with variable annuities, which contain some level of market risk.
- A guaranteed least income benefit (GMIB) is an optional rider connected to an annuity contract that guarantees a base level of payments once it has annuitized.
- While convenient, these riders will come at an additional cost to the annuity buyer.
