Understanding Annuities: Fixed, Variable, Immediate & Fixed Indexed.

Annuities are often marketed as reliable income solutions, but not all annuities are the same. Understanding the differences between Fixed, Variable, Immediate, and Fixed Indexed Annuities can help you determine which—if any—fits your financial goals. Let’s break them down.

First off, Annuities are issued via Insurance Companies and are “Guaranteed” by the issuing company, NOT FDIC or SIPC.

Fixed Annuities

What it is: A Fixed Annuity provides a guaranteed interest rate for a set period, offering predictable growth and income.

✅ Pros:

• Guaranteed returns

• No market risk

• Tax-deferred growth

❌ Cons:

• Lower potential returns

• Limited liquidity (surrender charges apply)

• Inflation risk if rates don’t keep up with rising costs

Variable Annuities

What it is: A Variable Annuity allows investments in sub-accounts (similar to mutual funds), meaning returns fluctuate with market performance.

✅ Pros:

• Potential for higher returns

• Tax-deferred growth

• Can offer lifetime income options (rider fees apply)

❌ Cons:

• Market risk—values can decline

• Higher fees (investment management, insurance costs)

• Complexity and restrictions on withdrawals

Immediate Annuities

What it is: With an Immediate Annuity, you provide a lump sum to an insurance company in exchange for guaranteed payments that can start immediately.

✅ Pros:

• Immediate, predictable income

• Protection from outliving your savings

• Simplicity—no ongoing management required

❌ Cons:

• Loss of liquidity—you give up control of the lump sum

• Payments may not keep up with inflation

• Lower potential returns compared to other investments

Fixed Indexed Annuities

What it is: Fixed Indexed Annuities offer returns tied to a stock market index (e.g., S&P 500) but with downside protection and typically a cap on gains.

✅ Pros:

• Some market-linked growth potential

• Downside protection (no market loss)

• Tax-deferred growth

❌ Cons:

• Gains are capped or limited

• Fees and surrender charges can be high

• Complex terms and crediting methods

Which One is Right for You?

The best annuity depends on your financial goals. If you prioritize security, a Fixed or Immediate Annuity may work. If you're comfortable with some risk for higher growth, a Variable or Indexed Annuity might be worth considering.

Annuities can be valuable, but they aren’t a one-size-fits-all solution. Understanding the trade-offs is key to making an informed decision. If you’re considering an annuity, consult with us today to ensure it aligns with your broader retirement strategy.

Want to explore how annuities fit into your financial plan? Let’s talk!