Comparing Fixed vs. Variable Annuities: Which Offers Better Guarantees?

Saving for retirement can feel overwhelming, especially when you're trying to figure out the best way to make your money last.

Some people want a steady and reliable income, while others are okay with taking some risks for the chance to grow their savings. That’s where annuities come in—they can help provide either stability or growth, depending on what you need.

In this article, we’ll explain the differences between fixed and variable annuities. We’ll look at their risks, returns, and guarantees so you can decide which one works best for your goals.

Fixed vs. Variable Annuities: Key Differences?

Are annuities a good retirement planning option for your goals? Get to know the difference between fixed vs. variable annuities in terms of risk, which annuities offer guaranteed rates, and their best use cases.

Investment Risks and Returns

When it comes to lower investment risk, fixed annuities come out on top. But there’s a reward to risk for variable annuities that can yield higher returns depending on stock market performance. 

· Fixed Annuities: Bottom line, fixed annuities offer low risk and steady returns. That's because when you purchase a fixed annuity you lock in guaranteed rate of return, regardless of market conditions.

· Variable Annuities: These carry higher risk but offer greater potential for returns. With a variable annuity earnings depend on the performance of investment options, like mutual funds. That’s good news for high performing years but exposes your principal to the rise and fall of market fluctuation.

Income Guarantees

Both fixed and variable annuities offer guaranteed income, but fixed annuities are more certain than variable annuities.

· Fixed Annuities: Provide a guaranteed income stream. You know exactly how much you’ll receive since fixed annuities have guaranteed rates, making them a reliable choice for covering essential expenses in retirement.

· Variable Annuities: Provide a guaranteed income stream, but that can vary based on investment performance. There’s a possibility of losing money with a variable annuity.

Best Use Cases

Annuities are a great retirement planning option to diversify your portfolio. But the best use for a fixed vs. variable annuities depends on your goals.

· Fixed Annuities: Best for individuals who are risk-averse and prioritize stability. If you want predictable income to fund daily expenses in retirement, a fixed annuity may be best for you.

· Variable Annuities: Great for growth-focused investors with a higher risk tolerance and longer time horizons. They work well for individuals who can weather risk for the potential higher returns.

Use Our Decision Guide to Choose Between Fixed and Variable Annuities

Still not sure whether a fixed or variable is best for you? Use decision guide to map out which product is your best retirement planning option:

1. Financial Goals

· Do you need stable, guaranteed income for essential expenses, housing, groceries, and healthcare? → Choose Fixed Annuities.

· Do you have other income sources and are willing to take a risk for higher growth? → Choose Variable Annuities.

2. Risk Tolerance

· Do you want to avoid risk and ensure your savings are protected from market downturns? → Fixed Annuities are safer.

· Are you comfortable with market ups and downs in exchange for the chance to increase your retirement savings? → Go with Variable Annuities.

3. Retirement Timeline

· Are you nearing retirement and need income soon? → Fixed Annuities provide predictable payouts.

· Are you farther from retirement and have time to let your money grow before taking withdrawals? → Variable Annuities are a good option if you have a longer timeline.

Need Help Deciding? Canvas Annuity Can Help

Both fixed and variable annuities can play important roles in retirement planning, but the right choice depends on your financial priorities. By understanding these differences, you can create a retirement strategy that fits your lifestyle. Explore Canvas Annuity products today and start building the future you deserve.