Fixed Indexed Annuities Vs. Variable Annuities

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Variable Annuity Vs. Fixed Index Annuity

Feature/CharacteristicFixed Index AnnuitiesVariable Annuities
Principal ProtectionEarnings are based on a formula linked to a market index (e.g., the S&P 500). The maximum return is usually capped.No guaranteed principal protection. The account value can decrease based on the performance of the underlying investments.
Earnings PotentialGenerally considered a lower risk due to the guaranteed minimum value.Earnings are based on the performance of the underlying investments (sub-accounts) chosen by the annuity owner. There’s no cap on potential returns.
Risk LevelIt is relatively straightforward, with a link to a market index.Higher risk as the value can fluctuate based on market performance.
FeesOften, they have higher fees, including mortality and expense risk charges, administrative fees, and sub-account management fees.Often have higher fees, including mortality and expense risk charges, administrative fees, and sub-account management fees.
Income OptionsTypically, they have lower fees than variable annuities. Some may have a spread/margin or participation rate.Can also provide guaranteed lifetime income options, but the amount might vary based on investment performance.
LiquidityMay have surrender charges if withdrawn before a certain period.May also have surrender charges and may impose additional fees for excessive withdrawals.
Tax DeferralEarnings grow tax-deferred until withdrawal.Earnings also grow tax-deferred until withdrawal.
Death BenefitTypically returns the account value or minimum guaranteed value to beneficiaries.It may offer a guaranteed death benefit option, which could be higher than the current account value.
ComplexityIt may offer a guaranteed death benefit option, which could be higher than the current account value.More complex due to a variety of investment options and features.
SuitabilitySuitable for those seeking principal protection with potential for limited growth.Suitable for those willing to take on more risk for potentially higher returns.
Variable Vs Fixed Indexed Annuities

The Differences Between Fixed Index And Variable Annuities

Principal Protection

  • Fixed Index Annuities (FIAs)
    FIAs are designed to protect your principal investment, making them an attractive option for conservative investors. Thanks to a guaranteed minimum value, your initial investment is secured, regardless of market performance. This stability is a significant draw for those seeking to avoid the volatility of the market while still having the potential for growth.
  • Variable Annuities (VAs)
    In contrast, VAs do not offer guaranteed principal protection. The value of your investment is tied to the performance of underlying assets such as mutual funds. While this means there is potential for higher returns, it also introduces a higher level of risk, as the value can decrease if the investments perform poorly.

Earnings Potential

  • Fixed Index Annuities (FIAs)
    FIAs provide a balanced approach by linking earnings to a market index like the S&P 500. A cap on the returns usually limits the maximum earnings but ensures a minimum return. This setup appeals to investors who prefer a moderate growth potential without significant risk.
  • Variable Annuities (VAs)
    VAs offer the potential for significant growth with no cap on returns. Your earnings depend entirely on the performance of the selected sub-accounts. This can lead to substantial gains, but it also means accepting the possibility of losses, making VAs suitable for investors with a higher risk tolerance.

Risk Level

  • Fixed Index Annuities (FIAs)
    Due to the guaranteed minimum value, FIAs are considered lower risk. They are ideal for risk-averse investors looking for a safe investment option with moderate growth potential.
  • Variable Annuities (VAs)
    VAs come with a higher risk as their value is subject to market fluctuations. They are suitable for investors with a higher risk tolerance and a longer investment horizon who aim for higher returns despite potential volatility.

Fees and Expenses

  • Fixed Index Annuities (FIAs)
    FIAs generally have lower fees than VAs. However, they may include a spread, participation rate, or other charges. Understanding these fees is crucial to ensuring they align with your financial strategy.
  • Variable Annuities (VAs)
    VAs often carry higher fees, including mortality and expense risk charges and administrative and sub-account management fees. These fees can significantly impact overall returns and should be carefully considered.

Income Options

Both FIAs and VAs can provide guaranteed lifetime income through various payout options. FIAs offer more predictable income, while the income from VAs may vary based on investment performance. This makes FIAs preferable for those seeking stability, whereas VAs are suited for those willing to accept variable income for potentially higher returns.

Fixed Indexed Annuity Vs Variable Annuity

How We Can Help

At The Annuity Expert, we understand the challenges you face when choosing the right annuity. Our 15 years of experience as an insurance agency, annuity broker, and retirement planner have equipped us with the knowledge to guide you through this process. We believe in finding the best solution at the lowest costs, ensuring you achieve your financial goals without unnecessary expenses.

Whether you’re looking for the security of principal protection or the potential for higher earnings, we offer personalized advice to help you make the best decision. We recognize the symptoms of uncertainty and confusion that come with retirement planning and are here to provide clarity and confidence.

What We Recommend

  • Step 1: Initial Consultation
    Contact us for a free initial consultation, during which we will assess your financial goals and risk tolerance. During this step, we will gather information to fully understand your needs. The main benefit is receiving a tailored approach that aligns with your financial objectives.
  • Step 2: Personalized Plan Development
    Based on the initial consultation, we will develop a personalized annuity plan that suits your specific requirements. We will explain the features of FIAs and VAs, their benefits, and how they fit into your overall retirement strategy. The main benefit here is having a clear, customized plan that offers peace of mind.
  • Step 3: Implementation and Ongoing Support
    Once you decide on the best annuity option, we will assist with the implementation process and provide ongoing support to ensure your investment remains on track. The main benefit is continuous guidance and adjustments to your plan as needed, ensuring your financial security and growth.

Features and Benefits

  • Principal Protection (FIAs): Secure your initial investment.
  • Higher Earnings Potential (VAs): Potential for significant growth without a cap.
  • Lower Fees (FIAs): Keep more of your earnings with lower costs.
  • Guaranteed Lifetime Income: Ensure a stable income throughout retirement.
  • Tax Deferral: Grow your investment more efficiently over time.

Overcoming Common Objections

  • Risk Concerns (VAs): We provide detailed risk assessments to help you make informed decisions.
  • Complexity: Our personalized guidance simplifies complex options, making them easy to understand.
  • Fees: We clearly outline all fees so there are no surprises, ensuring you know exactly what to expect.

Failing to choose the right annuity can lead to unnecessary risk and financial instability. However, working with The Annuity Expert ensures you have a secure, well-informed plan tailored to your needs, leading to a financially stable and stress-free retirement.

Experience the confidence and security that comes with knowing your financial future is in expert hands. Contact us today for free advice or a quote.

Fixed Indexed Annuities And Variable Annuities

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Frequently Asked Questions

What are fixed-indexed annuities and variable annuities, and how do they differ?

Fixed-indexed annuities guarantee a minimum return with the potential for more based on a market index. Variable annuities offer investment choices with higher risk and reward potential.

What are the benefits and drawbacks of investing in fixed-indexed annuities versus variable annuities?

Fixed-indexed annuities offer downside protection with limited upside potential. Variable annuities offer more significant upside potential but have higher fees and greater risk.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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