What is the Difference between Fixed Annuities and Variable Annuities?
Fixed annuities pay the same amount each month, while variable annuities pay an amount that depends on the investment performance of the investments held by the particular annuity. Thus, fixed annuities are like defined benefit pension plans, such as Social Security, while variable annuities are like defined contribution pension plans, such as a 401k. Fixed Annuity Considerations A fixed annuity offers tax-deferred growth. The earnings on your contract will not be taxed until they are withdrawn. That means the capital that would ordinarily go to the tax collector will instead accumulate interest for you. Over the life of your fixed annuity contract, that tax deferral can make a significant difference in your earnings. A fixed annuity offers a fixed rate of return. You know the rate of return at the beginning of each period – and that security can be very comforting. And finally, a fixed annuity offers a death benefit. If the annuitant dies before payout, his or her beneficiaries will r
