It is important to remember that a GLWB is not a stand-alone product but rather an optional product feature (a "rider") that one can attach to a variable annuity.
In terms of GLWB cons, think of the following high level considerations:
1) Cost - there is a meaningful cost that you will have to pay to include this product option. This cost will vary from company to company. Shop around and ask your advisor or the insurance company what the cost is. The fees associated with a GLWB will be deducted from the account value--this decreases the account value and subsequently any annual payment increases that may be tied to that account value.
2) More on cost - the costs of these products are now higher in the wake of the financial crisis. Insurance companies use hedging programs to provide these living benefits. The cost of hedging has increased so living benefits are more expensive and have features that are less rich than several years ago. Take a look at the interviews with Ryan Hinchey to understand further:
http://www.annuitydigest.com/blog/tom/changing-variable-annuity-landscap...
3) Credit risk - the guarantee is only as good as the company providing it. Buy from a top rated variable annuity carrier such as MetLife.
4) Interest rates and benefit features - the GLWB is fixed and will be set at the time of contract issuance. Interest rates are low in the wake of the crisis. As a result and similar to all of the people buying fixed annuities over the past several months, you would possibly be locking-in the GLWB rate in a less than optimal interest rate environment.
5) Inflation - similar to the above, if inflation and interest rates increase significantly in the future then the real value of the GLWB will erode. It is difficult for the real value of GLWB payments to keep pace with inflation when fees/costs are considered. For example, consider a 5% GLWB and 2% cost. A 4% rate of inflation would mean that the real rate of return is actually negative.
6) Understanding how the benefit actually works - you need to find an advisor who can clearly explain to you what is available with a particular product/company and how it works.
7) Watch-out for "sunset provisions" which would terminate your ability to "step-up" the account value in response to market gains if/when you reach a certain age.
8) Find out how long step-ups in the benefit withdrawal base last (i.e. how many years or until what age).
9) What is the impact of taking the GLWB immediately or delaying to a later age? Generally, GLWB payments will be higher the longer you wait.
10) How does poor market performance and decreasing account value affect future step-ups in the benefit withdrawal base?
