The income base (also called benefit base) is a crucial concept for understanding income riders on annuities. It's a calculated value used solely for determining your guaranteed income—not a value you can withdraw as a lump sum.
Income base vs. account value:
- Income Base: Used to calculate guaranteed withdrawals, grows by roll-up rate
- Account Value: Actual money in your contract, grows by credited interest
How the income base grows:
1. Initial Value: Usually equals your premium
2. Roll-Up Rate: Guaranteed annual increase (5-7% simple or compound)
3. Performance Credits: Some riders add index gains to income base
4. Step-Ups: May lock in higher value on anniversaries
Example income base growth (6% simple roll-up):
- Year 0: $100,000 (premium)
- Year 5: $130,000 ($100K + 5 × $6K)
- Year 10: $160,000 ($100K + 10 × $6K)
- Year 15: $190,000 ($100K + 15 × $6K)
Using the income base:
- Multiply by payout rate for annual income
- Payout rate based on age at activation
- Example: $160K income base × 5% payout = $8,000/year
Important distinctions:
- You cannot withdraw the income base as a lump sum
- Account value may be higher or lower than income base
- If account reaches zero, income continues based on income base
- Excess withdrawals may reduce income base proportionally
For Ocala retirees planning guaranteed income, understanding the income base helps you project future payments and make informed decisions about when to activate income riders.
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