Your annuity is really two buckets. Only one of them is yours to spend.
A client called me recently, excited about a “guaranteed 8%.” He couldn’t tell me what the 8% applied to. In my experience, many people can’t, and it isn’t their fault. Sales pitches often lead with the number and leave the details for later.
The short answer
An income rider on a variable annuity guarantees a future stream of income. It does not guarantee that your account grows by a set percentage. The income is calculated from a number you cannot cash out, and you pay a yearly fee on that number. Many people are surprised by the cost and the fine print.
What is a variable annuity with an income rider?
A variable annuity is an insurance contract that invests your money in sub-accounts, which work a lot like mutual funds. Your balance rises and falls with the markets, minus the contract’s fees.
An income rider is an optional add-on, often called a guaranteed lifetime withdrawal benefit. For a yearly fee, it promises you can withdraw a set percentage of a guaranteed amount each year for life.
The two buckets inside your annuity
The easiest way to understand these contracts is to stop thinking of one balance and start thinking of two buckets.
Where your money really sits
Same deposit, two very different buckets.
$500,000 depositedAccumulation bucket
Your accumulated value
- It is your money
- It rises and falls with the market
- Fees come out of it
- You can cash it out, less any surrender charge
Income bucket
The guaranteed withdrawal balance
- It is a calculation number, not cash
- It starts at your deposit and can grow by a bonus or step-up
- It sets your guaranteed income
- The rider fee is charged on it
You own the accumulation bucket. The income bucket only sets your paycheck and your fee.
The guarantee is real. It just isn’t a guarantee of what most people think it is.
A real example: Jackson Perspective II
That client’s contract was a different product. To show how these riders work in practice, I’m using the published terms of one real, current variable annuity: Jackson’s Perspective II. I’m not recommending for or against it. It’s simply an example with the numbers in plain sight.
What does it cost to leave early?
The withdrawal-charge staircase
Perspective II, charge by contract year on money withdrawn beyond the free amount
The charge starts at 8.5% and doesn’t reach 0% until year 8.
Each year you can withdraw the greater of your earnings or 10% of remaining premium without a withdrawal charge. Source: Jackson Perspective II product information, April 2026.
What does it cost to stay?
The annual cost stack on $500,000
Perspective II with the Flex Plus income rider, year one
$17,600 to $26,500 a year
Illustration only. Assumes a $500,000 premium, a single life, and a year-one guaranteed balance equal to the premium. The rider charge is a percentage of the guaranteed withdrawal balance, so it can change as that balance changes. The $35 annual fee is waived at $50,000 or more. Fund expense range is net, as of April 27, 2026. Sources: Jackson Perspective II product information and Income Stream comparison.
What do you pay for the income number?
Jackson’s Flex Suite offers several income riders. Here is what four of them pay and charge for a single person starting income at ages 65 to 69, on a $500,000 deposit.
Guaranteed income vs. yearly rider charge
Ages 65 to 69, single life, before any bonus or step-up
Moving from Flex Value to Flex Plus raises the income figure by $10,750 a year and the rider charge by $7,000 a year.
Flex Core and Flex Plus come with larger bonuses (6% and 7%, versus 5% for Flex Value and Flex Strategic Income), so this is not a like-for-like trade, but it shows the price of each step. The charge applies every year the rider is in force. Flex Strategic Income also has a standard option at 4.00% for the same charge. Source: Jackson Perspective II Income Stream comparison, September 2026.
What if you buy at 55 and turn on income at 65?
This is the question I hear most: how long does it take to get your money back? Here is one example, using Jackson’s published numbers.
A 55-year-old deposits $500,000 and adds the Flex Plus income rider. They wait ten years, turn on income at 65, and live to 85. The income percentage for a single person starting at 65 to 69 is 6.15%, which is $30,750 a year before any bonus or step-up.
Income received vs. rider charge paid
Bought at 55, income starts at 65, $500,000 deposit
| Years of income (age) | Income received | Rider charge paid since purchase | Income minus rider charge | Share of deposit |
|---|---|---|---|---|
| 5 years (70) | $153,750 | $127,500 | $26,250 | 5% |
| 10 years (75) | $307,500 | $170,000 | $137,500 | 28% |
| 15 years (80) | $461,250 | $212,500 | $248,750 | 50% |
| 20 years (85) | $615,000 | $255,000 | $360,000 | 72% |
In this no-bonus example, the income minus the rider charge hasn’t reached the original deposit by age 85. A bonus or step-up would raise the guaranteed balance, and with it the income and the charge, which would likely move these ages earlier.
Illustration only. Assumes the guaranteed balance stays at the $500,000 deposit (no bonus or step-up) and a 1.70% rider charge for all 30 years. A bonus or step-up would raise both the income and the charge. The income is not extra money: in a rider like this, withdrawals generally come out of your own account first, so the insurer’s guarantee matters most if that account runs out. Contract charges and fund expenses are not included and come on top. Source: Jackson Perspective II Income Stream comparison.
You pay for that insurance every year, whether or not you ever use it.
What are the catches?
Most of these come straight from Jackson’s own published disclosures.
- The fee is not locked in. Jackson reserves the right to raise the rider charge on each fifth contract anniversary, up to a maximum stated in the contract.
- Extra withdrawals shrink the guarantee. Taking more than the allowed amount reduces your guaranteed balance and your income in proportion to how much your account value drops, which can be more than the dollars you withdraw when the account is worth less than the guaranteed balance.
- The fee comes out of your bucket. The charge is deducted quarterly from your investments, so it reduces the accumulation bucket you actually own.
- It might never pay for itself. Jackson’s own materials say that in some circumstances the cost of an add-on benefit may exceed the benefit paid.
- Timing locks in your income. Your income percentage is set by your age when you take your first withdrawal.
- The guarantee is only as strong as the insurer. It is backed by the insurance company’s claims-paying ability and does not protect the value of the investments themselves.
Own a variable annuity with an income rider?
Schedule a short call with me for a free Financial X-Ray, with no obligation to become a client:
- Your accumulation bucket and income bucket, side by side
- Every fee, added up in dollars per year, based on the documents you provide
- What the rider guarantees, and what it does not
- Your surrender schedule and your options, including keeping the annuity as it is.*
What should you ask before you buy or keep one?
- What is my all-in annual cost, in dollars?
- What is the rider charge a percentage of, and can it change?
- What does the bonus or roll-up apply to, for how long, and is it simple or compound?
- What income percentage will I receive at my age?
- What happens to my guarantee if I withdraw more than the allowed amount?
- Are there limits on how I can invest?
- What will my heirs receive?
- How long is the surrender period, and what does it cost to leave?
Frequently asked questions
What is an income rider on a variable annuity?
An income rider is an optional feature, often called a guaranteed lifetime withdrawal benefit, that you pay a yearly fee for. It promises you can withdraw a set percentage of a guaranteed balance each year for life, subject to the contract’s rules.
What is the difference between the accumulated value and the guaranteed withdrawal balance?
The accumulated value is the money you actually own. It changes with the markets and fees and can be cashed out. The guaranteed withdrawal balance is a number the insurer uses to calculate your guaranteed income and your rider fee. You cannot withdraw it as a lump sum.
Is a variable annuity income rider worth it?
It depends on your situation, and the answer starts with the all-in cost. The contract charges, fund expenses, rider fee, and surrender charges are easy to underestimate, so compare the full cost in dollars with simpler alternatives before deciding.
How much does an income rider cost?
The rider fee is typically a percentage of the guaranteed balance each year, on top of the contract charge and the fund expenses. In the Jackson example above, the rider options ranged from 0.30% to 1.75% for a single person. With the Flex Plus rider, the total year-one cost on $500,000 ran from about 3.5% to 5.3%.
Can I get out of a variable annuity with an income rider?
Yes, but you may owe a surrender charge and taxes on gains, and you would give up the rider’s guarantee. Compare your accumulated value with your guaranteed balance, check the surrender schedule, and weigh what you would lose before making a change.
The bottom line: why give up liquidity?
Contracts like this are sometimes pitched as a safety net, or as the bond portion of your portfolio. In my view, you give up some access to your money during the surrender period and pay layered fees that weigh on your returns, in exchange for a guarantee that may take many years to pay off, and may never.
In the example above, which assumes no bonus or step-up, the income doesn’t add up to the original deposit until around age 81. A bonus or step-up could move that earlier, and the guarantee still pays if the account runs out. So the question is whether that protection is worth its cost and the reduced liquidity.
Access to your money is worth something. Ask what you give up to get a guarantee.
Liquidity means being able to reach your money when life changes: a health event, a business opportunity, a family need, or simply a different plan. It’s hard to price until you need it.
A diversified mix of stocks and bonds is built around that flexibility. You can generally sell part of it when you need cash, see what you own and what it costs on your statement, change your allocation as your life changes, and leave what remains to your heirs. There is no surrender schedule on the way out, though taxes, trading costs, and market prices still matter.
An income rider asks you to make a different trade: limits on access and a stack of ongoing charges in return for a guarantee. Both are trade-offs. The point is to see yours clearly and price it in dollars before you make it.
Want a second set of eyes on your annuity?
Schedule a short call and I will walk you through your fees, your guarantees, and your options, including keeping the annuity as it is.
Schedule a Free Financial X-RayInvestment advisory services are offered through Fiduciary Financial Advisors, a registered investment adviser. Registration with the SEC or a state securities authority does not imply a particular level of skill or training.
As a fee-only investment adviser, we are compensated through fees paid by our clients rather than commissions from the sale of investment or insurance products.
If you move money out of an annuity to be managed by Fiduciary Financial Advisors, the firm would earn advisory fees on those assets, which gives us a financial incentive to recommend the move. You are never required to make a change.
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This material is provided for general informational and educational purposes only and does not constitute personalized investment, tax or legal advice. Views expressed are current as of the date of publication and may change without notice. Market, economic and other information may be obtained from sources believed to be reliable; however, Fiduciary Financial Advisors does not guarantee its accuracy or completeness. Investing involves risk, including loss of principal. Past performance does not guarantee future results.
Charts, graphs and statistics are provided for informational purposes and are based on data from Jackson National Life Insurance Company product materials (JMV16680 04/26 and JMV14091CL 04/25). The information is believed to be reliable but is not guaranteed as to accuracy or completeness. Historical data does not guarantee future results.
Jake Hansma holds the Certified Exit Planning Advisor® (CEPA®) designation, issued by the Exit Planning Institute (EPI). To qualify, a candidate must have five years of full-time or equivalent experience working directly with business owners; hold an undergraduate degree from a qualifying institution or additional professional experience; be an EPI member in good standing; complete a five-day course; and pass an online, proctored, closed-book examination. CEPA® holders must complete 40 hours of continuing education every three years.
Annuity reviews are based on the information provided and may require additional contract documentation to evaluate applicable fees, surrender charges, withdrawal restrictions, and contractual benefits. Surrendering or replacing an annuity may result in additional costs, tax consequences, or the loss of existing benefits and guarantees.
Fiduciary Financial Advisors does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action. Before investing, consider investment objectives, risks, fees, and expenses. Investments in securities involve the risk of loss, including loss of principal. Past performance is no guarantee of future returns. The views and opinions reflected in the content are subject to change at any time without notice. The content speaks only as of the date indicated. Some information was obtained from external sources. The information is believed to be accurate, but there is no guarantee that it is.
Jake Hansma, CEPA is a fee-only fiduciary financial advisor at Fiduciary Financial Advisors in the Grand Rapids area. He helps small business owners and trade contractors with tax planning, exit planning, and investment management. Contact: jake@ffadvisor.com.
