Fixed vs. Variable Annuities: Which Is Right for You?

The Core Difference The fundamental difference between fixed and variable annuities comes down to one word: guarantees. Fixed annuities offer them; variable annuities don't. Fixed Annuities: Stability and Predictability How They Work With a fixed annuity, the insurance company guarantees a specific interest rate for a set period. Your money grows at that rate regardless of market conditions. Pros: Guaranteed rate of return Predictable income stream Protection from market downturns Lower fees than variable annuities Cons: May not keep pace with inflation Limited growth potential Early withdrawal penalties Variable Annuities: Growth Potential How They Work Variable annuities let you invest in sub-accounts similar to mutual funds. Your returns depend on investment performance. Pros: Potential for higher returns Investment flexibility Tax-deferred growth Optional death benefit riders Cons: No guaranteed returns Higher fees Market risk exposure Making Your Decision Consider your risk tolerance, time horizon, and income needs. Many retirees find a combination of both types provides the best balance of security and growth.