The Guaranteed Minimum Income Benefit (GMIB) protects your future income potential by guaranteeing you can convert your annuity to a lifetime income stream based on a minimum benefit base, regardless of how your investments perform.
How GMIBs work:
1. Benefit Base: Grows at a guaranteed rate (e.g., 5-6% annually)
2. Waiting Period: Typically 7-10 years before you can exercise
3. Annuitization Required: Must convert to income stream to use benefit
4. Income Calculation: Higher of actual value or benefit base
Key GMIB characteristics:
- Must annuitize to use the guarantee (lose lump-sum access)
- Benefit base is for calculation only, not withdrawal value
- Waiting period must be satisfied
- Annuitization rates specified in contract
- Common on variable annuities
GMIB vs. GLWB comparison:
- GMIB: Must annuitize, often higher potential income, lose account access
- GLWB: No annuitization required, maintain account access, more flexible
Example GMIB scenario:
- Initial premium: $100,000
- Benefit base growth: 6% annually for 10 years
- Benefit base at year 10: ~$179,000
- Actual account value (poor markets): $120,000
- You can annuitize based on $179,000 benefit base
- Resulting lifetime income: ~$10,700/year (at 6% annuitization rate)
For investors in Ocala concerned about market risk but wanting income guarantees, GMIBs provide a safety net ensuring your future income won't be devastated by poor market performance.
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