For Mark Roberts’ Use: When planning for retirement, many people choose to invest in an annuity. Under a variable annuity contract, one or more payments are made to an insurance company in exchange for guaranteed income stream or lump sum payment in retirement. Only the earnings portion of an annuity is taxed as income, making annuities a good option for retirees who need a tax-advantaged form of income.

For an additional cost, many variable annuities policies offer an additional “living benefit” guarantee. There are three main types of living benefits guarantees which you can add to your policy.

A guaranteed minimum withdrawal benefit allows the contract owner to withdraw a fixed percentage of the premiums paid until 100 percent of the premiums have been withdrawn, even if the contract’s underlying investments lose money. Investors may look at this as a way to guarantee their premium payments in the event of a market downturn.

A guaranteed minimum income benefit helps to ensure that payouts are based on a certain minimum base. This helps the contract owner to ensure a level of retirement income from the annuity regardless of how well the underlying investments perform.

A guaranteed minimum accumulation benefit helps to ensure the value of the contract. A minimum value is specified, usually equal to the premiums paid, and this living benefit prevents the contract value from falling below that specified value after a certain term.

All three of these living benefit options provide protection for annuity owners. But each option has its own unique costs and benefits. If you’re interested in protecting your annuity investment with a living benefit, talk to your financial advisor about which option is right for you. And as always, consider your risk tolerance and need for growth carefully. Don’t put all of your financial eggs in one basket when planning for retirement, and choose a mix of investments that provide peace of mind as well as the income you need to live comfortably.