You deserve a financially secure retirement where the money you’ve worked hard for throughout your career now works hard for you.
You should get to spend your golden years exploring passions, connecting with loved ones, volunteering, and traveling – not worried about how you’ll support yourself once your working years are over.
Keep reading to learn all about the rollup rate and how it can help you plan for a secure and stable future.
A Background on Annuities
Annuities are a form of insurance that pays out upon reaching retirement age, providing a steady stream of income. They have an accumulation phase (also known as a deferral stage) and a withdrawal phase.
The withdrawal (or annuitization) phase provides you with options for withdrawing your money, the chief of which are:
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- The lump-sum payout
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- The annuitization method
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- The systematic withdrawal plan
Taking your money as a lump sum gives you the most immediate access – at the cost of an extremely high tax rate. The entire investment gain from your annuity will be taxable in that year under ordinary income tax measures.
A life annuitization method provides a guaranteed amount you can withdraw monthly, giving you peace of mind against the possibility of outliving your money.
Period certain annuitization pays out over a certain number of years, either to you or a named beneficiary.
Systematic withdrawals allow you to withdraw as much as you like every month but provide no guarantee against outliving your money.
Annuity Income Riders
Annuity income riders are a relatively new phenomenon that turn a simple annuity into a guaranteed stream of income that you can’t outlive. You get a guaranteed source of higher income than banks can give, with less risk than many market investments.
Consider your unique needs and whether these riders provide you with the income you need, the payout commencement date, guaranteed income for life, and anything else important to you.
Consider other factors, too, such as potential fee increases, whether the interest gained on the annuity is simple or compound, the maximum length of time over which the income base may accumulate, and the roll-up rate.
What the Rollup Rate Is
The roll-up rate, also known as the income rider rate or step-up rate, and included in many annuity income riders, provides a locked-in rate at which the guaranteed portion of an annuity grows.
The rate is usually between 5 and 10 percent per year. However, this growth rate is almost always simple rather than compound interest.
A somewhat lower percentage of compound interest will yield a higher return over the long haul than a roll-up rate that looks more impressive initially.
Equally, note that the payout rate is also crucial to determining benefit: before deciding which annuity to invest in, speak to an experienced financial adviser.
Occasionally, you will encounter roll-up rates that start by compounding before switching to a guaranteed simple interest strategy.
Final Thoughts
The roll-up rate is best defined as a fixed, guaranteed growth rate on an annuity.
Careful planning will ensure you create an idyllic retirement with the income you deserve.
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