We hear a lot about annuities these days, but it’s important that all annuities are not created equal. There are some major differences that you need to understand prior to purchasing and becoming fully educated is the first step.

Both products can complement your overall retirement portfolio, but one will probably be a better fit for your individual situation. Begin the process with this brief overview and then you’ll be prepared to have a more in-depth conversation. Understanding the differences between a fixed and variable annuity is a perfect place to start.

Fixed Annuities. Fixed annuities are income oriented investments issued by an insurance company. In exchange for a deposit, or series of deposits, you are guaranteed a stream of income throughout retirement. The interest rate is fixed, so you can count upon a dependable source of funds. A fixed annuity protects you from fluctuations in the market.

Variable annuities. A variable annuity allows you to choose from a menu of investment options. You income stream is then based upon the performance of those options. In other words, the annuity’s performance is not tied to a fixed interest rate, but rather to the market conditions and the ups or downs of your strategic decisions.

Both types of annuities escape taxation until you begin receiving payments in retirement. The difference between them lies in the amount you receive out of the policy. A variable annuity which performs well is more likely to outpace inflation, and gives you the opportunity to earn a higher return on your investment. But of course, some retirees prefer the more “sure thing” of a fixed annuity and the security of knowing they can not lose money. All income payments and guarantees are based on the claims paying ability of the underlying insurance company

Like all decisions regarding planning for retirement, there is no one-size-fits-all answer that will work for everyone. If you’d like to learn more about variable and fixed annuities or have any questions about your specific situation, we welcome your phone calls and inquiries.