At times, dubious financial ideas become best-sellers. Professional financial advisors evaluate these ideas with a critical eye while helping their clients avoid costly mistakes with them. This is the case now with one of the hottest features in variable annuities – a rider called a Guaranteed Minimum Withdrawal Benefit (GMWB). The vast majority of clients who buy this feature don't understand it, partly because it doesn't make sense for them.

In choosing a tax-deferred variable annuity, clients participate in a long-term investment accumulation program for retirement. Yet, for the GMWB to make sense, the VA must meet a fundamentally different objective – generating steady retirement income. For purposes of producing retirement income that can preserve purchasing power over time, a VA with GMWB is more costly and less effective than alternatives, including systematic withdrawal plans and immediate variable annuities.

GMWB's are one of the most complex financial concepts ever for financial advisors to understand, explain and monitor. In this article, I'll tell you why GMWBs often are a bad idea for clients, how to evaluate them in a professional way, and why other solutions can work better for generating retirement income.