Fixed Annuities vs Variable Annuities
Fixed annuities and variable annuities are two different types of annuities. An annuity is a contract between you and an insurance company in which you agree to pay a certain amount of money up front (either in a single payment or in installments) and the insurance company agrees to pay you back a certain amount of money over time, either in a lump sum or in installments.
Fixed annuities offer a guaranteed rate of return for a specific period of time. This means that you know exactly how much money you will receive each month or year. Fixed annuities are typically considered to be a lower-risk investment than variable annuities.
Variable annuities invest your money in a variety of subaccounts, such as stocks, bonds, and money market funds. The performance of your variable annuity will depend on the performance of the subaccounts you choose. Variable annuities have the potential to earn higher returns than fixed annuities, but they also come with a higher degree of risk.
Here is a table that compares fixed annuities and variable annuities:
| Feature | Fixed Annuities | Variable Annuities |
|---|---|---|
| Rate of return | Guaranteed | Not guaranteed; depends on the performance of the subaccounts |
| Risk | Lower | Higher |
| Investment options | Limited | Wide range of options |
| Fees | May include surrender charges, administrative fees, and mortality and expense fees | May include surrender charges, administrative fees, investment fees, and mortality and expense fees |
Which type of annuity is right for you depends on your individual needs and risk tolerance. If you are looking for a guaranteed income stream and are willing to sacrifice some potential growth, then a fixed annuity may be a good option for you. If you are willing to take on more risk in order to have the potential to earn higher returns, then a variable annuity may be a better choice.
It is important to carefully consider all of your options before choosing an annuity. You should also talk to a financial advisor to get personalized advice.
