How does an annuity's investment performance influence its benefits?

The investment performance of an annuity plays a crucial role in determining its benefits, particularly for those products that are linked to market performance. Annuities that are tied to the performance of underlying assets, such as stocks or bonds, can fluctuate in value based on market conditions. When the market performs well, these annuities may offer higher payouts, as the returns generated from the investments can be passed on to the annuity holder. Conversely, if market performance is poor, the payouts may decrease.

This variability allows individuals to potentially benefit from capital appreciation during favorable economic conditions, making these annuities more aligned with investment goals and inflationary protection. It reflects a fundamental aspect of variable annuities, which can adjust payouts based on investment returns, providing a way to maximize income over time.

In contrast to this, products tied to fixed interest rates provide predictable and consistent payouts regardless of market conditions, offering stability but less growth potential. Therefore, understanding the connection between investment performance and benefits is essential for selecting the right annuity based on individual financial goals.