Fixed vs. Variable Annuity: What’s the Difference?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Variable Annuity Vs. Fixed Annuity

Annuities are powerful financial tools designed to provide a steady income stream, primarily during retirement. Understanding the differences between variable and fixed annuities is crucial in making an informed decision.

  • Variable Annuities: These allow you to invest in various sub-accounts, similar to mutual funds. Your returns and eventual income depend on the performance of these investments, which means they can fluctuate. While they offer the potential for higher returns, they come with higher risk as the principal is not protected. Additionally, interest can be lost due to poor performance.
  • Fixed Annuities: These offer guaranteed payments, providing stability and predictability. Your principal is protected, and you receive a fixed interest rate over a specified period. This makes them ideal for risk-averse individuals seeking a reliable income stream. The interest is locked in, ensuring that your returns remain stable and unaffected by market volatility.
  • Fixed Index Annuities (FIAs): These are hybrids offering a minimum guaranteed interest rate with the potential for higher returns linked to a market index, such as the S&P 500. They combine elements of fixed and variable annuities, offering a balance of risk and reward. The interest in FIAs is also locked in, providing a safety net against market downturns.
Variable
Annuity
Fixed Index
Annuity
Fixed
Annuity
Principal ProtectionNoYesYes
Access To PrincipalYesYesYes
Control Over MoneyYesYesYes
Tax-Deferred GrowthYesYesYes
Guaranteed GrowthNoYesYes
Guaranteed IncomeYesYesYes
Inflation ProtectionYesYesNo
Death BenefitYesYesYes
Long-Term Care HelpYesYesYes
Fixed Vs Variable Annuity

Deferred Variable Annuities vs. Deferred Fixed Annuities

  • Deferred Fixed Annuity: This is a type of fixed annuity where you receive payments at a future date rather than immediately. It’s a way to defer your income until retirement to enjoy tax benefits.
  • Deferred variable annuity: This is a variable annuity where the income is deferred to a later date. The amount you’ll receive depends on the performance of your chosen investments.
  • Multi-Year Guaranteed Annuity (MYGA): A subtype of fixed annuities, MYGA offers a guaranteed interest rate for a specific period, often ranging from 3 to 10 years.
Fixed Annuity Vs. Variable Annuity

Pros and Cons

Fixed Annuity Pros:

  • Guaranteed income and principal protection.
  • Simplicity and security.
  • Ideal for predictable retirement income.
  • Interest is locked in, providing stable returns.

Fixed Annuity Cons:

  • Lower returns compared to other investments.
  • Limited liquidity.

Variable Annuity Pros:

  • Potential for higher returns based on market performance.
  • Flexibility in choosing investments.

Variable Annuity Cons:

  • Returns aren’t guaranteed, and interest can be lost due to poor performance.
  • Higher investment risk.
Variable Annuity Vs. Fixed Annuity

How We Can Help

At The Annuity Expert, we understand the complexities and emotional stress of planning for retirement. You want to ensure financial security without unnecessary risks. We’ve been guiding clients for 15 years as an insurance agency, annuity broker, and retirement planner. We stand for finding the best solutions at the lowest costs, ensuring you get the most value for your investments.

The core problem we solve is helping you achieve a secure, predictable income for your retirement, tailored to your risk tolerance and financial goals. Whether you are risk-averse or seeking higher returns, we have the expertise to guide you through the nuances of each annuity type. We recognize the anxiety that comes with financial uncertainty and are here to offer clarity and confidence in your investment decisions.

What We Recommend

Step 1: Initial Consultation

  • Begin with a free consultation where we assess your financial goals, risk tolerance, and retirement needs. We’ll explain the different types of annuities, helping you understand which ones align with your objectives.
  • Main Benefit: Personalized financial strategy tailored to your unique needs.

Step 2: Customized Plan Development

  • Based on our initial discussion, we’ll develop a customized annuity plan that includes the best options for fixed, variable, or indexed annuities. We ensure you understand the benefits and potential risks.
  • Main Benefit: A clear, actionable plan that aligns with your financial goals and risk tolerance.

Step 3: Implementation and Ongoing Support

  • We assist you in implementing the chosen annuity strategy, managing the paperwork, and ensuring everything is set up correctly. We provide ongoing support and review your plan regularly to adapt to any changes in your financial situation or goals.
  • Main Benefit: Peace of mind with continuous guidance and adjustments to keep your plan on track.

Features and Benefits for Our Clients

  • Personalized Financial Advice: Tailored strategies that meet your individual needs.
  • Guaranteed Growth Options: Secure, predictable returns for a stable retirement.
  • Flexible Investment Choices: Options to suit both conservative and aggressive investment styles.
  • Tax-Deferred Growth: Enhance your savings with tax-deferred accumulation.
  • Ongoing Support: Continuous monitoring and adjustments to ensure your plan remains effective.

Overcoming Common Objections

“Annuities are too complicated.” We simplify the process, explaining every detail clearly to ensure you understand your investments.

“I’m worried about hidden fees.” Transparency is our priority. We break down all costs upfront, so there are no surprises.

“What if I need access to my money?” We offer flexible options and explain the terms clearly so you know exactly when and how you can access your funds.

Failing to work with us could result in missed opportunities for financial growth and security, leading to unnecessary stress and uncertainty. Conversely, partnering with The Annuity Expert ensures a secure, well-planned retirement, giving you peace of mind and financial freedom.

Contact us today for free advice or a quote.

Variable Vs. Fixed Annuity

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Frequently Asked Questions

Is variable or fixed annuity better?

Whether a variable or fixed annuity is better depends on individual preferences and financial goals. Variable annuities offer investment growth potential but carry market risk, while fixed annuities provide stable income but limited growth potential.

Why would someone choose a variable annuity over a fixed annuity?

Someone may choose a variable annuity over a fixed annuity for potentially higher investment returns, flexibility in investment options, and the ability to hedge against inflation through exposure to the stock market.

What is the disadvantage of fixed annuities?

A disadvantage of fixed annuities is that they typically offer lower potential returns compared to variable annuities or other investment options, which may limit long-term growth potential.

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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