How Do Variable Annuities Work?
A variable annuity has two phases 1) An Accumulation Phase and 2) A Payout Phase. Last week our discussion covered the Accumulation Phase. This week: the Payout Phase.
2) The Payout Phase
At the beginning of the payout phase, you may receive your purchase payments plus investment income and gains (if any) as a lump sum payment or you may choose to receive them as a stream of payments at regular intervals (generally monthly).
If you choose to receive a stream of payments, you may have a number of choices of how long the payments will last. Under most annuity contracts, you can choose to have your annuity payments last for a period that you set (such as 20 years) or for an infinite period that you set (such as your lifetime or the lifetime of you and your spouse and your other beneficiary). During the payout phase, your annuity contract may permit you to choose between receiving annuity payments that are fixed in amount or payments that vary based on the performance of the mutual fund investment options.

EXAMPLE
You purchased a variable annuity with initial purchase payment of $10,000. You allocate 50% of that purchase payment ($5,000) to a bond fund and 50 percent ($5,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond has a 3% return. At the end of the year, your account has a value of $10,650 ($5,500 in the stock fund and ($5,150 in the bond fund) minus fees and charges.

The amount of each periodic payment will depend, in part, on the time period that you select for receiving payments. Be aware that some annuities do not allow you to withdraw money from your account once you have started receiving regular annuity payments.
In addition, some annuity contracts are structured as immediate annuities which means that there is no accumulation phase, and you will start receiving annuity payments right after you purchase the annuity.

Thought for the Week
If the bank in Red Bank, New Jersey buys the bank in Long Branch, New Jersey will the new bank be called the Long Branch branch of the Red Bank Bank?