Why Your Annuity Statement Shows Two Numbers
Pull up an annuity illustration. This is the projection your agent hands you, showing how the contract might perform.
You’ll see two columns of numbers.
- Account value: This is the real money in your contract today.
- Annuity benefit base: This is a separate, calculated number used only to illustrate your future income payment.
The company tracks them separately because the account value moves with the market, while the benefit base moves by a fixed contract formula.
What the Account Value Is and Does
The account value is where your premium goes. It’s the actual money, which grows with index credits. This interest is tied to a market index, capped by a ceiling on gains, a participation rate that limits your share of the index return, or tied to a spread that shaves points off the top.
The annual rider fee that you pay comes directly out of the account value.
If you surrender the contract early, you get the account value minus any surrender charge.
When you die, your beneficiary receives the account value in most contracts.
What the Benefit Base Is and Does
The annuity benefit base is a calculated value used only to determine the size of your income payment. It looks like a second pile of savings, but it’s a pricing formula, not cash.
- It grows during deferral. That’s the years before you turn income on.
- It grows by a fixed annual percentage written into the contract, called the rollup rate.
- At activation, the carrier multiplies it by a withdrawal percentage based on your age to set your guaranteed annual income for life.
You can’t withdraw the benefit base as a lump sum, and it doesn’t pass to your heirs unless you buy an enhanced death benefit rider at extra cost.
A Worked Example Showing Both Values Diverge
Here’s an example of a $200,000 contract with a 7% compound rollup on the benefit base, and mixed index performance affecting the account value. Figures below are illustrative and rounded; actual results depend on your contract’s fee and your index crediting.
Both columns start with the same $200,000 initial deposit, but then diverge. The left column is your real money. The right column is the formula the insurer uses to size your future income.
| End of year | Account value | Benefit base |
|---|---|---|
| Start | $200,000 | $200,000 |
| 1 | $209,900 | $214,000 |
| 2 | $207,600 | $229,000 |
| 3 | $215,500 | $245,000 |
| 4 | $221,500 | $262,200 |
| 5 | $218,700 | $280,500 |
| 6 | $231,000 | $300,100 |
| 7 | $234,700 | $321,200 |
| 8 | $243,000 | $343,600 |
| 9 | $239,300 | $367,700 |
| 10 | $245,000 | $393,400 |
A few points to keep in mind:
- By year 10 the benefit base is about $393,000 and the account value is about $245,000, a gap of about $148,000.
- That $148,000 gap is not money in your account. It’s the size of the income guarantee you are paying for.
- The rider fee, charged every year on the benefit base and taken out of the account value, is the price of that gap.
The Benefit Base in Five Scenarios
- You surrender the contract. The benefit base disappears. You get the account value minus any surrender charge and nobody gets a check for the benefit base.
- You die before turning income on. The benefit base dies with the contract, and your beneficiary gets the account value. Some riders add an enhanced death benefit for an extra fee.
- You die after turning income on, single-life rider. The income payments stop at death. Some contracts guarantee a minimum payout period that continues to a beneficiary.
- You die after turning income on, joint-life rider. Income continues to your surviving spouse for life.
- You reach RMD age of 73. The required withdrawal calculates from the account value, not the benefit base.
Common Misconceptions
Here are some common mistakes people make when it comes to account value versus benefit base.
All three stem from the same wrong assumption. That assumption: the benefit base is a second pot of money you own. These misunderstandings cost real money!
- “When I die, my family gets the benefit base.” In most contracts heirs receive the account value, not the benefit base.
- “I can withdraw the benefit base in chunks.” False. Withdrawals come out of the account value and reduce the benefit base proportionally.
- “The benefit base is my money, it just grows differently.” False. It is a calculation used to determine the size of your income, not a balance you own.
