Retirement Income Riders: Worth The Cost Or Waste Of Money?

An income rider is an optional add-on to an annuity that guarantees you a lifetime income stream. It costs extra typically 0.5% to 1.5% of the benefit base per year. The question is whether that cost is worth it.

Here is how it works: you purchase an annuity with an income rider. Over time, the rider credits a growth rate to your income benefit base (not your actual account value). When you activate the rider, you receive a guaranteed percentage of that benefit base as income for life, regardless of what happens to your account value.

The advantage is certainty. No matter how long you live or what the market does, you know exactly how much income you will receive each month. That peace of mind is valuable.

The downside is cost. Over 15 years, a 1% rider on a $300,000 policy costs $45,000 in rider fees. You need to decide whether the guaranteed income is worth that price tag.

Income riders make the most sense for people who are worried about outliving their savings and do not have other sources of guaranteed income. They make less sense for people who have strong pensions or enough assets to self-insure.