Variable annuitization begins with the selection of an assumed interest rate, commonly called the AIR. The AIR is the rate of investment return or growth that the contract is assumed to experience during the annuitization stage, and it is the benchmark against which actual future growth of the contract’s funds will be measured. If the actual net returns on the contract’s funds are greater than the AIR, the annuitant’s income payments will increase; if the net returns are lower than the AIR, the income payments will decrease. If the net returns are the same as the AIR—in other words, if the actual returns increase at the rate they were assumed to—the annuitant’s income will remain the same.
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