In a variable annuity, payments fluctuate based on the account invested primarily in what assets?

• A. Government bonds
• B. Common stocks
• C. Real estate
• D. Cash equivalents

Answer: (B)

In a variable annuity, the amount you receive when you annuitize isn’t fixed; it depends on how the funds you’ve chosen within the contract perform. The subaccounts you pick determine the account value, and the one that moves the most is the portion invested in common stocks. Equity investments tend to be more volatile and have higher potential gains (or losses) than other asset types, so the overall value of the contract—and thus the periodic payments—fluctuates with the performance of those stock-based subaccounts.

Fixed-income assets like government bonds or cash equivalents are generally more stable and provide relatively steady income, and real estate investments, while they can move, don’t drive the day-to-day volatility in the same way equities do. So the primary driver of payment fluctuation in a variable annuity is the portion invested in common stocks.