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Chapter 12
PAYOUTS REDUCE THE AMOUNT OF THE INDEXED ANNUITY
When payouts occur under the Guaranteed Annual Payment schedule, what happens to the Indexed Annuity account value?
It is reduced in proportion to those payouts.
The Income Rider and the underlying investment -- the Indexed Annuity -- do not maintain account balances independently. Any funds distributed under the provisions of the Income Rider are considered as distributions from the Indexed Annuity and its account balance is reduced accordingly.
It is very important for anyone contemplating purchasing the Indexed Annuity with Income Rider not to be confused or mislead: the separate values of the Indexed Annuity account and the Income Account Value are not combined. If the Indexed Annuity account value is, say, $320,714 when the Income Account Value is $522,027.20, there is no total account value of the two balances.
This never happens.
The Income Account Value is only there to distribute funds in the special and magical way that it does. It is not an asset. Not ever; neither during the course of the contract while the participant(s) is alive, nor at death.
Think of the Income Account as a phantom account.
What do you mean by Phantom Account?
The amounts listed beside any of the years under the Income Account Value are not, in the traditional sense, amounts that can be withdrawn as a lump-sum.
Virtually every other type of financial instrument allows the owner to have access to the entire value (less surrender charges, where applicable) as a lump-sum. This is the case with stocks, bonds, mutual funds, savings accounts, etc. All are assets. Not so with the Income Account Value which exists only to distribute income in accordance with the Guaranteed Annual Payment schedule. Otherwise it is a phantom with virtually no value as either a lump-sum or an asset. Aside from the owner and his/her spouse, the Income Account value does not exist.
What if the total of Guaranteed Annual Payments over the years exceed the Indexed Annuity account value?
Even if the payouts have reduced the Indexed Annuity account value to zero, they will continue beyond that point for the lifetime of the annuitant.
Can I ever withdraw funds outside of the conditions of the Income Rider?
Yes.
Most annuities allow for up to 10% penalty-free withdrawals per year. In this case, any withdrawals taken directly from the Indexed Annuity and outside of the Income Rider will, however, not only reduce the value of the Indexed Annuity but reduce the amount of income available under the Guaranteed Annual Payment schedule.
Although the owner has the freedom and flexibility to make such withdrawals, I would advise against it if at all possible. One should go into this investment for the purposes of taking full advantage of the wonderful features of the Income Rider; withdrawals will only reduce those benefits.
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