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Annuities as an Asset Class for Fee-Based Advisors l 27 © Envestnet 2022 Lifetime Income Benefits We have just described contract value growth for deferred annuities. For deferred annuities offering guaranteed lifetime withdrawal benefits, there can be a separate and parallel set of calculations to determine a benefit base and guaranteed income amount. We must consider how guaranteed income is determined for both the growth during the deferral and distribution periods. Before going further, I must emphasize that obtaining guaranteed income through a lifetime income rider is not the same as annuitizing the contract. The contract is still technically deferred after lifetime income begins. The benefit rider supports an allowed annual distribution amount for the lifetime of the annuitant, or annuitants in the case of a joint contract. Ultimately, while the underlying contract value of assets remains positive, retirees are spending their own money. The insurance company then pays from its own resources after the contract value depletes. Contract value depletion is what eventually triggers annuitization. First consider the growth process for the guaranteed benefit base during the deferral or accumulation period before distributions begin. This growth is important because it is subsequently used to determine the amount of guaranteed lifetime income provided by the annuity. The deferral period can be skipped if the retiree starts lifetime distributions immediately. There are two general ways that lifetime income benefits can grow in a deferral period before the lifetime income commences. The first is a more complicated method that includes a benefit base, a rollup rate, and the possibility for step-ups. Deferred annuities with income guarantee riders generally support the ability to lock-in a guaranteed growth rate on the benefit base during the accumulation period, and also offer the ability to define the benefit base as the high watermark of the contract value of the underlying assets on anniversary dates if that growth is higher than the guaranteed rate. The benefit base is a hypothetical number used to calculate the amount of guaranteed income paid during the withdrawal phase. It is distinct from the contract value of assets, which is what the owner could access based on actual account growth net of fees and any surrender charges. For this method, a guaranteed lifetime withdrawal benefit rider supports an income for life at a fixed withdrawal percentage (based on the age when distributions begin) of the guaranteed benefit base. It initially equals the premium paid into the annuity, which is also the initial contract value for the assets. Over time, the contract value of assets can rise or fall depending on realized investment returns and as fees and distributions are taken from the asset base. On any contract anniversary, if the contract value of the underlying assets has reached a new high watermark and exceeds the guaranteed benefit base, that base is stepped up to the new high watermark value. This increases the subsequent amount of guaranteed income. During the deferral period before distributions begin, an annuity may also offer a guaranteed rollup rate to increase the benefit base automatically over time if the value of the underlying contracted assets has not otherwise grown larger on its own. Generally, the benefit base can grow at the higher of either a guaranteed rollup rate or the high watermark achieved through contract value growth. There are two general ways that lifetime income benefits can grow in a deferral period before the lifetime income commences.

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