Fixed vs. Variable Annuities
What is an annuity?
An annuity is a contract that allows the owner to receive periodic payments during their retirement. If annuitized correctly, it could be a guaranteed income during retirement.
Annuities provide a valuable savings vehicle with growth potential and flexibility. A key advantage that annuities offer over typical methods of saving is the opportunity for guaranteed lifetime income. Annuities can provide benefits and features that may benefit a diversified portfolio and can be a valuable retirement planning tool.
Fixed vs. Variable Annuities
There are two main types of annuities: fixed and variable. The main difference between them is the amount of risk assumed to achieve your desired rate of return. Variable annuities will carry more risk, while fixed annuities typically offer competitive interest rates and limited risk. Annuities offer growth opportunities, fund flexibility, and the option for guaranteed lifetime income.
Fixed Annuity: An insurance contract that allows the owner to accumulate interest with minimal risk. American Fidelity guarantees both the principal and interest on our fixed contracts and there is a guaranteed minimum rate of interest which the contract will never pay less than, as long as the contract is in force.
Variable Annuity*: This contract allows the potential for greater returns on investments over the long term by allowing the owner the ability to invest in various market-based portfolios. In a variable contract, principal, interest, and market gains are not guaranteed and, therefore, not suitable for everyone.
Compare the Differences
Fixed Annuities:
- Little to no risk
- Guaranteed interest rate
- Guaranteed principal
- Flexible payout options
- Low to no fees
Variable Annuities:
- Risk based on investment options
- Growth based on market performance
- Guaranteed principal return at a minimum, if owner passes
- Flexible payout options
- Fees and expenses may be higher