Fixed annuities versus variable annuities
Prior to delving into the differences between variable annuities and fixed annuities, it is important for you to know how both the types of annuities work and what are their specific advantages.

What are fixed annuities?

• With fixed annuities, the life insurance companies agree to make payments for fixed rates of earnings to investors for their entire life after a particular date.
• There are many retirees who make the choice of these annuities mainly because of their stability, guaranteed income, and predictability.
• With a fixed annuity in place, the insurer assumes the performance risk of the securities of the annuity by directing the annuitant’s principal investment into a selection of fixed-income investments.
• The amount of income received by the annuitant at the payout stage is clearly determined by a blend of the mortality expectancy of the investor and the value of the account.
• The premium of fixed annuities is placed in the general account of the insurance firm, and this money is generally invested in various bonds.

What is a variable annuity?

• A variable annuity offers a more complicated trade-off to investors. These annuities are structured around the market for stocks and various other fluctuating monetary tools. Thus, the profitability gained from these annuities can greatly differ.
• When an individual buys a variable annuity, their premium gets distributed into different sub-accounts aligning with their preferred risk level.
• There are absolutely no guaranteed returns that can be expected of variable annuities. This is mainly because the principal amount is invested in several sub-accounts comprising money market tools, and stocks and bonds.
• Variable annuities are connected to the performance of different financial instruments such as stocks, precious commodities or metals, and mutual funds.

What is the difference in the payment structure of fixed and variable annuities?

• Both fixed and variable annuities can either be deferred or immediate annuities.
• Deferred annuities do not start receiving payments for several years or decades after purchase.
• However, the annuitants with immediate annuities start receiving payments from their annuities shortly after buying them.

What is the difference in the advantages gained from fixed and variable annuities?

• Fixed annuities generally come with a guarantee that the annuitants will not lose their principal unless there is a mishap caused by the insurance company.
• Variable annuities help the annuitants in receiving periodic payments for their entire life or the life of the beneficiary, such as the spouse. So, here is complete protection against the possibilities of outliving investments.
• A fixed annuity comes with a number of payout options, and these include periodic withdrawals, lump-sum withdrawals, or a blend of both.
• Variable annuities come with death benefits. This means that if you are an annuitant and you die prior to receiving the payments, your beneficiary shall receive the amount. This also happens in situations when your account has lost money.
• Even though fixed annuities are considered to be a low-risk option, they come with certain risks such as payments being guaranteed by the insurance company and not the government. This means that in case the insurance firm goes out of business, the annuitant might lose their money.
• Variable annuities are high-risk options. Their value is always at risk, as it is connected to different financial products.

What is the difference in variable annuity fees and fixed annuity fees?

• Fixed annuities do not carry different fees. However, there are certain fees tacked on these annuities, such as surrender charges, annual fees, commission, and income rider.
• There are different fees of variable annuities in addition to their principal. Fees that are specific to a variable annuity include administrative fees, investment expense ratio, mortality expenses, and income riders.

How can you find the best fixed annuities?

• Finding the best fixed annuities might be a bit difficult. This is because it is not possible to know whether an annuity is actually the best or not.
• The “best” criterion is based on exclusive factors needed from a certain annuity to actually meet a specific set of situations.

There are several considerations as to what would the best fixed annuity be, and this would completely depend on the situation you are in.