Fixed Annuity Vs. Variable Annuity

Fixed and variable annuities are two types of annuities available for purchase. One annuity provides guaranteed values for the life of the product while the other can increase its value with exceptional investment performances.

Fixed Annuity

Fixed annuities are given set interest rates by the insurance company. The insurer controls the investments within the annuity and provides the owner with guaranteed values and payouts.

Variable Annuity

This type of annuity allows the owner, not the insurer, to choose how to invest his money in subaccounts such as a mutual fund. The performance of his investments will determine how much money he is paid. The insurer's state insurance department and the Securities Exchange Commission regulate variable annuities.

Fun Fact

All annuities, including fixed and variable, are tax deferred products which means that the money grows tax free until it is withdrawn.

Benefits

Unlike retirement plans such as 401(k) and IRAs where the IRS imposes contribution limits, owners of annuities can put as much money into it as they want without penalty.

Considerations

Fixed and variable annuities can be funded with periodic payments or a lump sum. Also owners can choose to receive money immediately or defer payments until they retire.

References

• CNNMoney.com:What are the Advantages of Annuities

Resources

• Insurance Information Institute:What are the Different Types of Annuities?