Should I Choose a Fixed or Variable Annuity?

Fixed and variable annuities can be important components of your long-term savings or investment portfolio. Each type of annuity has its own particular advantages and disadvantages. And they offer the potential for tax-deferred growth.

But how do you choose between them? What criteria do you use to decide whether to select a fixed annuity or a variable annuity contract?

Fixed Annuity Considerations

Fixed annuities offer 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 The earnings on your contract will not be taxed until they are withdrawn.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 contract, that tax deferral can make a significant difference in your earnings.

Fixed annuities offer 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, fixed annuities offer a death benefit. If the annuitant dies before payout, his or her beneficiaries will receive all the purchase payments plus any accumulated earnings.

Variable Annuity Considerations

Variable annuities offer many of the same benefits as fixed annuities, including tax-deferred growth and a death benefit.

Unlike fixed annuities, however, you control where the value in your contract will be invested. Within the limits of the investment divisions, you can be as aggressive or as conservative as you’d like.

This gives a variable annuity the potential for higher returns than a fixed annuity.

But remember: this potential for higher returns requires you to assume a greater risk of loss.

Making the Choice

The type of annuity contract you choose, then, depends on what function you’d like it to fill in your savings and investment portfolios.

Both fixed and variable annuities offer tax-deferred growth and a death benefit. But where a fixed annuity offers a fixed rate of return, a variable annuity offers some flexibility.

If you need an addition to your portfolio that offers stable, tax-deferred growth with high security, a fixed annuity could be just what you’re looking for.

On the other hand, if you’re looking for a tax-deferred investment that will let you take a more active role, a variable annuity could be right for you.

Whichever you choose, an annuity contract can be an attractive addition to your investment and savings portfolio.

Withdrawals made from an annuity prior to age 59½ may be subject to a 10 percent penalty. Generally, surrender charges apply if withdrawals are made in the early years of the policy. An annuity's benefits are contingent upon the claims-paying ability of the issuing insurance company. Variable annuity subaccounts fluctuate with changes in market conditions and, when surrendered, your principal may be worth more or less than the original amount invested.