Fixed, fixed indexed, and variable annuities can work very differently. Understanding the basics can help you know what questions to ask before considering one.
Fixed Annuities
A fixed annuity generally provides a stated interest rate for a specified period, subject to the terms of the contract. It may appeal to someone looking for predictability rather than direct market participation.
Fixed Indexed Annuities
A fixed indexed annuity credits interest based in part on the performance of an external market index, subject to contract terms such as caps, participation rates, or spreads. The money is not invested directly in the index.
Variable Annuities
A variable annuity allows contract value to be allocated among investment options, often called subaccounts. Values can fluctuate with market performance, which means there is potential for both gains and losses.
The details matter
Two annuities within the same category can still have very different features, costs, surrender periods, income options, and limitations. Understanding the actual contract is essential.
Which type fits your situation?
There is no single annuity that is appropriate for everyone. Your goals, age, time horizon, liquidity needs, risk tolerance, income needs, and other financial resources should all be considered.