What is the Difference Between a Fixed Annuity and a Variable Annuity?

The greatest difference between a fixed annuity and a variable annuity is that the return on a fixed annuity is just that: fixed. If you invest in a fixed annuity, you are guaranteed to make back your investment plus a pre-determined rate of interest. With a variable annuity, you are guaranteed a minimum payment, but the return you get on your investment is dependent on the performance of the money market instruments in your annuity account.

Fixed and variable annuities are both issued by insurance agents. Both are available in immediate and deferred form, meaning that either may be a good retirement investment strategy for you regardless of whether you are looking for retirement income now or in 25 years. Deciding whether to invest in a fixed annuity or variable annuity is generally a matter of how risk-seeking or risk-averse you are. With a variable annuity, you have a chance to make much more on your principle than with any fixed annuities you invest in. But the chance that you will make less than you would on a fixed annuity also exists. Many retirement planners choose to invest in both fixed and variable annuities, decisions that your insurance broker can help talk and walk you through.