Example:John invests $100,000 in a fixed annuity at 6% for 10 years. His contract stipulates a 10% interest-only annual allowance. After the first year, John could only withdrawal $6,000 penalty-free, because that's how much income the annuity with generate in one year at 6%. If the annual allowance hadn't been interest-only, he could have withdrawn $10,000 penalty-free.
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