Income Base vs. Account Value
How an Annuity Income Rider Really Works
Two Numbers, One Paycheck
By Jared Prazen | Secure Retirement Planners
If you've looked at an annuity with a lifetime income rider, you've probably heard phrases like "guaranteed 5% growth," "income base" and "bonus." Those terms get blurred a lot, sometimes by the people selling them.
In this video, I walk through a real income rider illustration so you can see which numbers are real money, which ones aren't, and why that matters.
Every income rider has two numbers
Account value: real money. What you could walk away with and what your heirs would receive. It grows with index credits and shrinks with withdrawals and fees.
Income base: a calculation. Used only to figure your lifetime income. It can't be withdrawn, cashed out or inherited, and it grows by a contractual "roll-up" rate.
In the illustration we used, a $1,000,000 deposit started with an account value of $1,070,000 and an income base of $1,120,000. The extra $50,000 is a rider bonus that exists only in the income base. It raises the income, but it's never money you can withdraw.
How the paycheck is calculated
Your lifetime income equals the income base times the payout rate for the age you start. The base grows while you wait, and the payout rate rises with age:
| Income starts at | Income base | Payout rate | Income for life |
|---|---|---|---|
| Age 66 | $1,176,000 | 7.5% | $88,200 |
| Age 70 | $1,429,435 | 8.0% | $114,355 |
| Age 75 | $1,824,362 | 8.5% | $155,071 |
Should you wait?
Waiting pays more each year, but every year you wait is a year without checks. In this example, starting at 70 doesn't pass starting at 66 in total income until about age 83, and starting at 75 doesn't pass it until about age 86. If you're still working and don't need the income yet, waiting can make a lot of sense. If you need it now, take it now.
What it costs, and what happens when the account runs out
The rider fee in this illustration was about 1.5% a year, calculated on the income base and taken from the account value. In the first year, that was $17,640.
Here's what the fee buys. Even assuming the index credits nothing, the account value runs out around age 76, and the $88,200 keeps coming for life. By age 95, that's about $2.65 million of income on a $1 million deposit.
The trade-off: your heirs receive whatever is left in the account value, not the income base. If he passed away at 72 in this example, he'd have received $617,400 in income and his heirs about $357,000. If he lives to 95, there's nothing left for heirs, but he's collected over $2.6 million.
Five questions to ask about any income rider
What's my payout rate at the age I plan to start income?
How does the roll-up work: simple or compound, and for how many years?
What is the rider fee charged on, and can it change?
What would my heirs receive if I pass away early?
Can my income ever increase once it starts?
A question worth answering
If you own an annuity, do you know which number on your statement is real money? If you're not sure, that's exactly the conversation we have with every family we work with.
Keep watching: What happens to a couple's income when one spouse passes away.
About the author:
Jared Prazen is a financial advisor with Secure Retirement Planners, focused on retirement income planning for people approaching or already in retirement. He helps families build plans that cover their essential expenses with predictable income, so the rest of their money can be managed with a clear plan.
Based on a hypothetical illustration of a fixed indexed annuity with a lifetime income rider: $1,000,000 premium, male age 65, single life, 0% interest assumed, dated October 17, 2026. Bonuses, roll-up rates, payout rates and fees vary by product. Guarantees depend on the claims-paying ability of the issuing insurer.
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This material is provided for educational purposes only and does not constitute individualized financial, legal, or tax advice. Investment strategies involve risk, including possible loss of principal. Availability of strategies depends on individual suitability and applicable regulations. Insurance products, if applicable, are issued by properly licensed insurance companies. Guarantees are based on the claims-paying ability of the issuing insurer.