What happens to accumulation units when an investor starts to withdraw income from an annuity?

When an investor begins to withdraw income from an annuity, the accumulation units convert into annuity units. This transition signifies the change from the accumulation phase, where the investor contributes funds and the investment grows, to the distribution phase, where withdrawals are made.

Annuity units are calculated based on the total value of the accumulation units at the time of conversion and the current value of the annuity, providing a fixed income stream for the investor. This process allows for a systematic withdrawal of money without having to liquidate or sell the investment at a fluctuating market value. The value of annuity units is tied to the performance of the underlying investments, and the conversion ensures the investor receives an organized and stable income based on their saved funds.

This mechanism differentiates the annuity's operational phases, illustrating how accumulation units are transformed based on the investor's choice to access the funds.