What is the Assumed Interest Rate?
An assumed interest rate is used to calculate an income payments.'s periodic
How Does the Assumed Interest Rate Work?
To understand how the assumed interest rate works, one must first remember how an annuitant) and an insurance company (usually). The insurer agrees to pay the annuitant a certain amount of money for a specific number of periods.works. It's a contract between an individual (the
When the investments. So, an assumed interest rate of 5% on $1 million of would generate larger minimum payments to the annuitant than if the assumed interest rate were only 2%. Although the annuitant would receive additional payments if the 's underlying assets outperform certain expectations, the assumed interest rate specified in the contract determines the minimum guaranteed payment (the annuitant's age, the type of contract, and whether the annuitant's spouse will receive payments if the annuitant dies also affect this payment).is variable, the annuitant receives a minimum guaranteed periodic payment as well as excess payments that correspond with the performance of the 's underlying
Why Does the Assumed Interest Rate Matter?
In general, the larger the assumed interest rate, the larger the periodic payment to the fund their retirements, and because the assumed interest rate heavily influences the size of that income, it is of great importance. If the assumed interest rate is too low, the payments may not be very large, especially after the 's fees and expenses are deducted.. But because the insurance company (or the entity providing the to the client) determines the assumed interest rate, it pays to shop around. After all, often use income to