What Is a Guaranteed Lifetime Withdrawal Benefit (GLWB)?

A Guaranteed Lifetime Withdrawal Benefit (GLWB) is a rider to a variable annuity contract that allows for withdrawals, either regular or occasional, to be made from an annuity during the accumulation phase without penalty. The annuitant pays for the GLWB rider with additional fees that are added to the total value of the annuity contract. The amount of money that is allowed to be withdrawn is a percentage of the total value of the annuity.

Key Takeaways

  • A Guaranteed Lifetime Withdrawal Benefit (GLWB) is a rider that can be added to a variable annuity that guarantees some minimum level of lifetime income once it annuitizes.
  • Depending on its terms, the GLWB may increase as the investments connected to the variable portion of the annuity rise.
  • The rider is often optional, and comes with additional fees and charges, but allows a variable annuity to have some fixed aspects.

Understanding Guaranteed Lifetime Withdrawal Benefits

A Guaranteed Lifetime Withdrawal Benefit (GLWB) allows the holder of this rider to an annuity to take regular or occasional withdrawals from the annuity during the accumulation period before it is annuitized.

Typically, an annuity is a contract between the purchaser, called the annuitant, and the issuer, in which the annuitant makes a one-time payment or regular payments to the issuer, and in exchange, the issuer makes monthly payments back to the annuitant after the balance of funds in the annuity is reached or some other contracted threshold is met. It is a way to save for retirement by making regular payments for a period of time and then receiving regular payouts during retirement.

In most cases, the annuitant is not allowed to withdraw or receive any payments from the account until the account switches from the accrual period, in which the annuitant is paying in to the account to fund the annuity, to the annuity period. This process is called annuitizing the account, and it is a relatively simple mechanism of filling the account by paying into it, and then paying out distributions from the account to the annuitant either monthly, quarterly or yearly. If the annuitant draws money out of the account during the accrual period, they face stiff fees.

A GLWB rider allows the annuitant to take distributions from the annuity during the accrual period, regardless of how the fund is doing, while the fund still grows and stays close to target for funding date and annuitization. It is possible that the GLWB distributions will drain the fund of enough money so that the date of annuitization of the fund will need to be delayed. The amount that can be withdrawn through the GLWB is determined by the rider contract. 

Pros and Cons of a Guaranteed Lifetime Withdrawal Benefit

Unlike a traditional annuity, which ties up the money the annuitant puts into the fund until retirement, ​a GLWB rider on an annuity allows the annuitant to access the money they have paid into the annuity by withdrawing some of it before the annuity is done with the accrual period.

This greater flexibility means that the annuitant could trade some of the stability of the annuity for a greater return on the money if they invest the money they've withdrawn from the annuity into a riskier investment with a higher return.

The only real cons of a GLWB rider are the cost of purchasing it and the potential that the distribution period of the annuity could be delayed if a significant amount is withdrawn early from the annuity.