Fixed Indexed Annuity With Income Rider Can Help Retirees Who Can't Spend Their Portfolio

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A listener with ample secure income — more than enough to cover basic living costs from Social Security and pensions — described buying a fixed indexed annuity (FIA) with a guaranteed income rider a year ago with a couple hundred thousand dollars, solely to solve a behavioral problem: he could not bring himself to spend money from his investment portfolio. An FIA ties its growth to the performance of a stock index while protecting against loss; an income rider is an add-on feature, costing roughly 0.75% to 1.25% per year by Jim Saulnier's estimate, that guarantees a set annual withdrawal no matter how long the owner lives. The listener received a 30% bonus on his deposit for income calculation purposes plus 8% growth in year one, and when he turned on income after 12 months he received $32,000 per year — about 14% more than the $28,000 quote he had gotten from a simpler single premium immediate annuity (SPIA), which pays a fixed monthly income for life with no bells or account balance. Saulnier cautioned that FIAs from private-equity-owned insurers — some of which use offshore reinsurers in Bermuda or the Cayman Islands — carry risks that regulators are now scrutinizing, and he prefers using simpler SPIAs from highly rated mutual insurance companies for lifetime income. However, he acknowledged that for people who genuinely cannot spend from a lump-sum portfolio, annuitizing discretionary or fun spending can be a legitimate behavioral solution.