Simple Interest

Average: 4 (1 vote)

The 7 percent minimum guarantee that is referenced by the other reviewer is simple interest - not compound interest.

For someone who invests $100,000 in this variable annuity, the minimum guaranteed increase in the income benefit would be $7,000 per year.  

If this person holds onto the VA and does not take any withdrawals for 10 years, the income base would have a guaranteed minimum of $170,000.

If the benefit were based on compound interest rather than simple interest, that same income base would be $196,715.

A $26,715 difference is pretty meaningful.

Now assume that the actual income withdrawal benefit is 5 percent.  

5 percent of the $170,000 is $8,500 per year.

5 percent of $196,715 is $9,835.