The Rollup in 2025: Maximizing Your Variable Annuity with a GLWB
In today’s financial landscape, the “rollup” feature—also called a “deferral bonus”—remains one of the most compelling reasons to consider a variable annuity with a guaranteed lifetime withdrawal benefit (GLWB). This feature automatically increases the “income base” (also known as the “benefit base”) by a set percentage each year you refrain from making withdrawals. The income base is critical as it determines the amount of your guaranteed annual income.
For example, if Ms. Smith invests $100,000 into a variable annuity, her initial benefit base is $100,000. Each year she delays taking withdrawals, the benefit base may grow at rates like 5% or 6% compounded annually, or even 10% on a simple growth basis. Many policies guarantee the benefit base will at least double the original investment if no withdrawals are made for 10 years.
Two Common Misconceptions About Rollups
Despite its appeal, the rollup feature is often misunderstood:
Confusing the Rollup with Account Value Growth
Many people mistakenly believe that the rollup increase in the benefit base reflects growth in the account’s market value. This is not true. The account value represents the actual market value of the underlying investments, which can fluctuate based on market performance. The rollup only applies to the benefit base used to calculate guaranteed income—it does not directly affect the account value or cash surrender value.
Underutilization of Rollup Features
A recent study by Milliman, a leading actuarial consulting firm, reveals that many retirees who purchase variable annuities with GLWBs and rollups fail to maximize the rollup feature. Instead, they often begin withdrawing income—typically 5% or 6% of the benefit base—within the first few years of ownership. Financial advisors may recommend annuities with rollups for their potential, but evidence suggests clients often don’t delay withdrawals long enough to fully capitalize on the feature.
How to Make the Most of a Rollup
If you decide to purchase a variable annuity with a rollup, it’s essential to understand and plan for its effective use:
Delay Withdrawals: To maximize the benefit, consider delaying income withdrawals. For instance, purchasing the annuity at age 55 and deferring withdrawals until age 65 allows the rollup feature to significantly enhance the benefit base.
Align with Your Goals: If you plan to take immediate income, the rollup may not be worth the added cost. Rollups typically come with fees, and if you don’t leverage their growth potential, you might end up paying for a feature you don’t use.
The Bottom Line
The rollup feature is a powerful tool for building future income security, but it requires a strategic approach. If you’re purchasing a variable annuity with a GLWB, familiarize yourself with how the rollup works and evaluate whether it aligns with your financial goals and timeline. For those who can plan ahead, the rollup can provide substantial benefits—but if immediate income is your priority, you may want to consider other options.
Written by Kerry Pechter
