The March 5, 2012 post, How Will a Premium Bonus Affect Your Fixed Index Annuity Income Distribution?, answered the eighth and final question presented in the February 6, 2012 post, 8 Questions to Ask Yourself When Analyzing Premium Bonuses. Taking a further step back, premium bonus availability was the first fixed index annuity variable included in the list of six contractual variables introduced in the January 30, 2012 post, Contractual vs. Situational Fixed Index Annuity Income Calculation Variables.
As stated in the January 30th post, there are six contractual and four situational variables, for a total of ten potential variables that are used to calculate the income, or lifetime retirement paycheck ("LRP") amount that you will receive when you purchase an income rider with your fixed index annuity ("FIA"). Before continuing our discussion of the remaining six contractual variables, it's important that you understand the concept of "income account value," and how it differs from "accumulation value."
If you opt for an income rider when you purchase a FIA, and assuming that you will exercise your rider by taking income withdrawals from your FIA, your contract's income account value will determine the amount of income that you will receive each year once you begin to take your income distributions. With an income rider, you, and if applicable, a joint annuitant, are entitled to receive income for the rest of your life, or lives.
Any income withdrawals will reduce the accumulation value of your FIA, with any remaining value payable to your contract's beneficiaries in the event of your, and your joint annuitant's, if applicable, death(s). Assuming that income withdrawals continue for several years, it's possible that your accumulation value will be depleted while you or a surviving joint annuitant continue(s) to receive income.
How is a FIA's income account value calculated? Stay tuned for next week's post.