What determines how much an annuitant is paid for a variable annuity?

The amount an annuitant receives from a variable annuity is primarily determined by the value of the underlying securities. In a variable annuity, the premiums paid by the annuitant are invested in a selection of securities, such as stocks and bonds, which can fluctuate in value over time. As the market changes, so does the value of these underlying investments, directly affecting the amount that the annuitant will receive.

This variability is a core characteristic of variable annuities, as opposed to fixed annuities where payouts are determined based on a fixed interest rate. In a variable annuity, the annuitant assumes the investment risk, meaning that their returns will rise or fall depending on market conditions. Therefore, if the value of the underlying securities increases, the payout may also increase, while a decline in value could lead to lower payouts.

Concerning the other options, fixed interest rates and pre-determined payout schedules are more relevant to fixed annuities, where payments are consistently structured based on set rates or schedules. An inflation index might influence the value of money over time but does not directly determine the payout of a variable annuity. Thus, the determination of the payment amount is intrinsically linked to the performance of the securities held