What factor determines the payments an annuitant receives from a variable annuity?

The payments an annuitant receives from a variable annuity are primarily influenced by the market value variations of the securities backing the annuity. In a variable annuity, the investor's contributions are allocated to a variety of investment options, typically consisting of mutual funds or similar investment vehicles. The performance of these underlying investments directly affects the value of the annuity and, consequently, the payments made to the annuitant.

As the market fluctuates, the value of these investments may rise or fall, which causes the annuity payments to vary accordingly. Therefore, the annuitant’s income is not fixed; instead, it can increase if the investments perform well or decrease if market conditions are unfavorable. This characteristic of variable annuities distinguishes them from fixed annuities, where payments are predetermined and do not change with market conditions.