Bonds’ low returns and risks of rising rates have investors seeking shelter.

High concentrations in low-return bond allocations can spell portfolio stagnation. Retirees now realize that the traditional 4% safe withdrawal rate is less than 3%. Annuities offer relief, but the value of income riders as a defense against inflation is questioned.

Pressure to both preserve principal and generate income have retirees in a quandary. Having spent their portfolio accumulation years under the assumption that bonds were a safe option that could provide a 6% – 8% annual return, many are experiencing closer to 2%. These retirees have neither the time nor the risk tolerance for a significant bond turnaround.

Compounding matters is the realization that an assumed annual safe withdrawal rate of 4% of assets is closer to 2.8%. This 30% annual reduction can cost retirees $12,000 annually – the difference between $40,000 and $28,000 – from an original million-dollar nest egg. Commonly known as the gauge of assets’ endurance for a lifetime, there’s still a 10% risk of depletion at the 2.8% withdrawal rate.

Adoption of fixed index annuities featuring guaranteed lifetime income and principal-protection measures has steadily grown in recent years. Many factors affect both the cost and benefit including the principal investment, years until initial payout and the amount to be paid monthly or annually.

Income riders are an optional item for purchase, and can serve as a hedge against inflation and the uncertainty of any cost-of-living allowance from Social Security. COLA’s have been a no-show in several recent years, and 0.3% annualized for 2017, barely merit a monthly cup of coffee for many recipients.

Given these circumstances, it’s initially logical to think of income riders as a no-brainer. However, some advisers – perhaps a minority – have begun to question their inclusion based on the cost/value relationship. They reason that riders reduce withdrawal percentage rates to the point that there’s little difference in the monthly payout, and that by eliminating the rider, there’s no fee, and the time will come sooner for the insurance company to subsidize the monthly withdrawals.

Because annuities vary by carrier and are highly customizable, it behooves investors to gain all available knowledge with the help of an expert to determine if an annuity is a suitable solution for achieving predictable income.

Steve Savant interviews top retirement specialists in their field of expertise. This segment features retirement specialist Spencer Frankenberger. Right on the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.