Fixed vs. Variable Annuities: Which Is Right for You?

Are you considering an annuity but unsure which type would best meet your needs? Fixed and variable annuities offer unique advantages and disadvantages depending on the investor's risk-tolerance level, desired payouts, and time frame.

With a better understanding of what each type entails, making a more informed decision when choosing between fixed vs. variable annuities or even another investment opportunity is possible. In this article, we'll discuss critical differences between these two options with a logical rationale for why one may be better than the other in certain situations.

Introducing Annuities: What They Are and How They Work 

Annuities are a type of financial product that can provide a reliable income stream for people who have saved for retirement. An annuity is an agreement between an individual and an insurance company. In exchange for a lump sum or a series of payments, the insurance company promises to make regular payments to the individual. Depending on the type of annuity, these payments can be either fixed or variable.

Annuities are often used to ensure that retirees have a steady source of income throughout their retirement years. While they may not be a suitable option for everyone, annuities can be a valuable tool for individuals looking for a reliable way to generate income and protect their finances in retirement.

Fixed vs. Variable Annuities – The Pros and Cons of Each 

With a fixed annuity, an insurance company guarantees a certain rate of return for a specific period. This rate is typically set at the time of purchase and does not fluctuate with changes in the market value. The downside to this type of annuity is that it generally offers lower returns than other investments and has surrender charges if you change your mind within the contract period.

On the other hand, variable annuities involve investing in underlying sub-accounts such as stocks, bonds, or mutual funds. This type of annuity has higher potential returns than a fixed annuity, but it also comes with greater risk. The value of your annuity can fluctuate depending on the performance of the underlying investments, so it's essential to understand what you're getting into if you decide to invest in a variable annuity.

Another option worth considering is Global Atlantic's fixed-indexed annuities, which offer potential growth and protection from downside risk. Global Atlantic annuity is designed to capture the upside potential of stock market returns while providing additional downside protection on invested principal.

Understanding Fees, Surrender Fees, and Death Benefits 

Another vital factor to consider when choosing between fixed and variable annuities is the fees associated with each type. Fixed annuities typically come with an annual maintenance fee, while variable annuities charge both a mortality and expense risk charge and any sub-account management fees. It's essential to be aware of all fees your insurance company charges before signing on the dotted line.

In addition to fees, it's also vital to understand surrender charges and death benefits associated with each type of annuity. Many companies will impose a surrender charge if you try to withdraw money within the first few years of purchase, so make sure you understand these terms before investing in an annuity. Death benefits are also often offered; if the annuity owner dies before receiving their income payments, the remaining balance will be paid to a designated beneficiary.

Considering Your Goals and Risk Tolerance 

When deciding between a fixed or variable annuity, it's essential to consider your goals and risk tolerance. Fixed annuities offer a steady income stream but may provide a different potential for growth than variable annuities. On the other hand, variable annuities can offer higher returns but come with more risk. Ultimately, it is up to each investor to decide which type of annuity best fits their unique financial situation.

No matter what type of annuity you choose, it is essential to research and ensure you understand all the fees and terms associated with your policy before investing. Annuities can be an effective way for individuals to protect their retirement savings and generate income in retirement, so make sure you are well-informed before making any decisions.

Comparing Different Types of Annuities 

When investing for retirement, annuities can be a great option. However, several different types of annuities are available on the market, each with its own features and benefits. Fixed annuities offer guaranteed income for life but may not provide the same growth potential as variable annuities. Variable annuities come with more risk but also have the potential to offer higher returns. Global Atlantic's fixed-indexed annuity offers both the potential for potential growth and protection from downside risk.

No matter what type of annuity you choose, ensure you understand all fees associated with your policy before investing. Additionally, it's essential to consider your goals and risk tolerance when deciding between a fixed or variable annuity.

Finding the Right Financial Planner to Help Make the Right Decision for You

When it comes to retirement planning, understanding annuities and their features can be daunting. That's why finding the right financial planner is crucial to help you understand your options and make the best decision. A qualified financial advisor can provide invaluable guidance on choosing the type of annuity and other retirement planning strategies.

Investing in an annuity is a big decision that should not be taken lightly. Before committing, research your options thoroughly, and talk to a professional if you have any questions or concerns. With the proper guidance and advice, you can ensure that you are making an informed decision about which type of annuity will meet your needs today and in the future.