The spectacular failure of this model over the last twenty years of falling interest rates is well documented. Income rates fell dramatically. Many policy holders found their income shrinking by more than fifty percent of the illustrated amounts. Worse yet, existing policyholders often found that their credited rates were below rates being promised to prospects or holders of newer contracts. Several large companies collapsed, the most prominent being Executive Life of California, and policyholders were left serious capital depletion as well as reduced income.
Variable annuities promise an income for life, but they don t promise any particular amount.
One dollar per month would satisfy the contract requirements. The first month s payment is calculated based on an assumed earnings amount. Thereafter, the entire payout is based on future earnings of the various separate accounts. Poor investment results will result in ever decreasing income to the retiree. In this respect, the investor is no better off than if he calculated a fixed percentage withdrawal from a mutual fund portfolio.