Annuities promise guaranteed income in retirement, but the two main types — fixed and variable — work very differently. One offers certainty; the other offers growth potential with risk.
Here’s everything you need to know to decide if either fits your retirement plan.
Fixed vs Variable Annuity: Quick Comparison
Fixed annuity rate range below reflects typical market conditions and changes with the Fed funds rate — confirm current rates before comparing products.
Feature
Fixed Annuity
Variable Annuity
Returns
Guaranteed rate (commonly ~5-6.5% for competitive terms as of Sept 2026; confirm current)
Market-based (varies widely)
Principal protection
Yes
No (unless rider added)
Upside potential
Limited
Unlimited
Downside risk
None
Can lose money
Fees
Low (built into rate)
High (2-3%+ average)
Complexity
Simple
Complex
Investment options
None
Sub-accounts (like mutual funds)
Best for
Conservative investors
Growth-oriented investors
How Each Type Works
Fixed Annuities
Feature
How It Works
You give
Lump sum or periodic payments
Insurance company guarantees
Fixed interest rate for set period
Your account
Grows at guaranteed rate
At retirement
Convert to lifetime income stream
Risk
Insurance company creditworthiness
Illustrative example: You invest $100,000 in a fixed annuity paying an assumed 5%. After 10 years at a guaranteed 5%, your account would be worth $162,889 — no market risk. (Confirm the actual current rate on any specific product, as rates vary by term and carrier.)
Variable Annuities
Feature
How It Works
You give
Lump sum or periodic payments
You choose
Investment sub-accounts
Your account
Fluctuates with market
At retirement
Convert to income (amount varies)
Risk
Full market risk
Example: You invest $100,000 in variable annuity sub-accounts. After 10 years, depending on markets, your account could be substantially higher or lower than your premium — returns are uncertain and not guaranteed.
Types Within Each Category
Fixed Annuity Types
Type
Features
Best For
Traditional fixed
Set rate for 1-10 years
Predictable growth
Fixed indexed
Returns tied to index, with cap
Some upside, principal protected
MYGA (Multi-Year Guaranteed)
Locked rate for full term
CD alternative
Immediate
Income starts within 1 year
Current retirement income
Deferred income (DIA)
Income starts years later
Future retirement income
Variable Annuity Types
Type
Features
Best For
Basic variable
Market returns, no guarantees
Growth-focused investors
With GLWB rider
Guaranteed lifetime withdrawal benefit
Income floor protection
With death benefit rider
Guaranteed minimum to heirs
Estate planning
Lower-cost variable
Minimal fees; available from some providers (e.g., Fidelity, TIAA) — confirm current offerings
Cost-conscious investors
Returns Comparison
Historical Return Ranges
Ranges below are illustrative reference points, not guarantees or predictions — fixed annuity rates in particular change with prevailing interest rates.
Annuity Type
Typical Range
Notes
Fixed annuity
Commonly mid-single digits; confirm current guaranteed rate
Rate locked at purchase
Fixed indexed annuity
0% to a cap (varies by contract, often mid-to-high single digits)
This is a hypothetical illustration using assumed returns, not a projection of actual future performance for any product.
Scenario
Fixed (5% assumed)
Variable (Good, assumed)
Variable (Average, assumed)
Variable (Bad, assumed)
Annual return
5% guaranteed (illustrative)
10% market - 3% fees (assumed)
7% market - 3% fees (assumed)
3% market - 3% fees (assumed)
Net return
5%
7%
4%
0%
After 10 years
$162,889
$196,715
$148,024
$100,000
Outcome certainty
100% (if guaranteed rate)
Variable
Variable
Variable
After fees, variable annuity returns may not beat guaranteed fixed rates, especially in weaker market environments — but this depends entirely on actual (unpredictable) market performance.
Fees Comparison
Fixed Annuity Fees
Fee Type
Typical Amount
Notes
Explicit fees
$0
Built into rate
Surrender charges
5-10% (declining)
Years 1-7 typical
Administrative
$0-30/year
Often waived
Effective total cost
0.5-1%
Embedded in rate offered
Variable Annuity Fees
Fee Type
Typical Amount
Notes
Mortality & expense (M&E)
1.0-1.5%
Insurance charges
Administrative fees
0.10-0.30%
Account maintenance
Sub-account fees
0.50-1.50%
Like mutual fund expense ratios
Optional riders
0.50-1.50%
GLWB, death benefit
Total typical cost
2.0-3.5%
Every year
Fee Impact: $100,000 Over 20 Years (Illustrative)
Assumes a constant 7% gross return, which is not guaranteed — this table illustrates the mechanical effect of fees, not a market forecast.
Fee Level
Assumed Gross Return
Net Return
Illustrative Final Value
Illustrative Amount Lost to Fees
0.10% (index fund)
7.00%
6.90%
$378,337
$8,100
1.00% (fixed annuity)
6.00%
5.00%
$265,330
$121,107
2.50% (variable avg)
7.00%
4.50%
$241,171
$145,266
3.50% (variable high)
7.00%
3.50%
$198,979
$187,458
High fees can meaningfully reduce growth over two decades in this illustrative model — actual outcomes depend on real market returns.
Risk Comparison
Fixed Annuity Risks
Risk
Level
Mitigation
Market risk
None
Principal guaranteed
Inflation risk
Moderate
Fixed payments lose purchasing power
Interest rate risk
Low
Rate locked at purchase
Insurance company failure
Low
State guaranty associations (commonly $250K-$500K depending on state)
Liquidity risk
Moderate
Surrender charges, limited withdrawals
Variable Annuity Risks
Risk
Level
Mitigation
Market risk
High
Can lose substantial principal
Inflation risk
Low
Growth can outpace inflation
Fee drag risk
High
Reduces returns every year
Insurance company failure
Low
State guarantees (varies by state)
Complexity risk
High
Hard to understand products
Downside Scenarios
Event
Fixed Annuity
Variable Annuity
Market drops 30%
Account unchanged
Account drops 30%+
Market flat for 5 years
Earns guaranteed rate
Loses to fees
Inflation spikes
Purchasing power erodes
Growth may keep pace
Company fails
State guarantee (commonly $250K-$500K depending on state)
Similar protection
Tax Treatment
Tax Rules for Both
Event
Tax Treatment
Contributions
After-tax money (non-qualified)
Growth
Tax-deferred
Withdrawals
Gains taxed as ordinary income
Before age 59½
10% penalty on gains
Death benefit
Beneficiary pays income tax on gains
Tax Comparison to Alternatives
Account
Contribution
Growth
Withdrawal
Annuity
After-tax
Tax-deferred
Ordinary income
Roth IRA
After-tax
Tax-free
Tax-free
Traditional IRA
Pre-tax
Tax-deferred
Ordinary income
Taxable account
After-tax
Taxed annually
Capital gains
Key insight: Annuities offer no tax advantage over a Roth IRA, which is tax-free on withdrawal. Max tax-advantaged accounts before considering annuities.
Income Options
Fixed Annuity Income
Payout Option
Description
Best For
Life only
Payments for your lifetime
Maximum monthly payment
Life with period certain
Life + guaranteed minimum years
Leaving something to heirs
Joint life
Payments until both spouses die
Couples
Fixed period
Set payments for specific years
Known timeline
Variable Annuity Income
Option
Description
Notes
Annuitization
Convert to fixed payments
Loses flexibility
Systematic withdrawals
Take what you need
Account can deplete
GLWB rider
Guaranteed minimum for life
Popular option, costs 0.5-1.5%/year
GLWB (Guaranteed Lifetime Withdrawal Benefit)
Feature
How It Works
Benefit base
Initially equals investment, may grow
Withdrawal rate
4-6% of benefit base guaranteed for life
Market up
Account grows, income potential increases
Market down
Guaranteed floor protects income
Cost
0.50-1.50% annually
Example: $200,000 in variable annuity with GLWB. Guaranteed 5% withdrawal = $10,000/year for life, regardless of market performance. If markets do well, income can increase.
Surrender Charges
Typical Surrender Schedules (Illustrative — Confirm Your Contract)
Year
Fixed Annuity Penalty
Variable Annuity Penalty
1
7-10%
7-8%
2
6-9%
6-7%
3
5-8%
5-6%
4
4-6%
4-5%
5
3-5%
3-4%
6
2-4%
2-3%
7
1-2%
1-2%
8+
0%
0%
Free Withdrawal Provisions
Provision
Common Terms
Annual free amount
10% of account value
Nursing home waiver
No penalty if entering care
Terminal illness waiver
No penalty if diagnosed
Death benefit
Typically no surrender charge
When Each Makes Sense
Fixed Annuities Make Sense When:
Situation
Why Fixed Works
You need guaranteed income
Predictable retirement budget
You’re very risk-averse
No market risk
Rates are high
Lock in good rate
Near or in retirement
No time to recover losses
Want pension-like income
Lifetime payments
Already maxed 401(k)/IRA
Additional tax deferral
Variable Annuities Make Sense When:
Situation
Why Variable Works
10+ years to retirement
Time for growth
Maxed all other tax-advantaged
Need more tax deferral
Want market exposure with income floor
GLWB rider combination
Prioritizing lower cost
A handful of providers offer lower-cost variable annuities — compare fees directly
Estate planning with step-up
Death benefit rider
When Neither Makes Sense
Situation
Better Alternative
Haven’t maxed 401(k)/IRA
Max those first
Need liquidity
Keep in savings/investments
Young (under 50)
More time in market without fees
High fees (3%+)
Low-cost index funds instead
Don’t understand the product
Don’t buy what you don’t understand
Real-World Scenarios
The following scenarios use illustrative, assumed figures for comparison purposes — actual rates, returns, and payouts vary and are not guaranteed. Get current quotes before making any decision.
Scenario 1: Conservative Investor, Age 60
Situation: $500,000 in retirement savings, wants guaranteed income starting at 65
Option
Structure
Illustrative Income at 65
Risk
MYGA fixed annuity
~5% assumed for 5 years
~$638,000 → ~$38,000/year (illustrative)
None
Fixed indexed
Up to ~8% capped (illustrative)
Wide range depending on market path
None (capped upside)
Variable with GLWB
5% withdrawal
$25,000+ minimum guaranteed (illustrative)
Market fluctuation
A commonly cited approach for this profile: A MYGA fixed annuity — at 60 nearing retirement, a guaranteed rate locks in known income. Confirm the actual current rate before purchasing, and compare against alternatives suited to your full financial picture.
Scenario 2: Aggressive Investor, Age 45
Situation: Already maxes 401(k) and IRA, wants additional tax-advantaged growth
Option
Cost
Illustrative Assumed Net Return
Illustrative 20-Year Value (of $100k)
Variable (high-cost)
3.0%
4% (assumed)
$219,112
Variable (lower-cost provider)
~0.5%
~6.5% (assumed)
$352,365
Taxable index fund
0.1%
~6.9% tax-affected (assumed)
~$320,000
Worth comparing: Lower-cost variable annuity options (from providers such as Fidelity or TIAA — confirm current offerings and fees) or taxable index funds. High-cost variable annuities are rarely worth their fees for this profile; if choosing variable, prioritize the lowest-cost option available.
Scenario 3: Retiree Wanting Income Floor
Situation: Age 65, $300,000 in savings, worried about outliving money
Option
Cost
Illustrative Guaranteed Income
Upside
Fixed immediate annuity
Built-in
~$21,000/year for life (confirm current quote)
None
Variable with GLWB
2.5%/year
~$15,000/year minimum (illustrative)
Can increase if markets rise
Systematic withdrawal
0.1% (ETF)
None guaranteed
Full market participation
A commonly discussed approach: A fixed immediate annuity for a portion of savings — e.g., using $150,000 for guaranteed income to cover basics, keeping $150,000 invested for flexibility and growth. This is educational framing, not personalized advice.
Alternatives to Consider
Before Buying an Annuity, Consider:
Alternative
Pros
Cons
Max 401(k)/IRA
Lower fees, more flexible
Contribution limits
I Bonds
Backed by the US government, inflation-protected
$10k annual purchase limit per person
CDs
FDIC insured, no fees
Lower rates than annuities in some environments
Bond ladder
Control over terms
More effort to manage
Dividend stocks
Growth + income potential
Market risk; dividends not guaranteed
Index funds
Lowest fees, diversified
Must manage withdrawals
The “DIY Annuity” Strategy
Component
Purpose
Replaces
Treasury bonds/I Bonds
Safe growth
Fixed annuity
Stock index funds
Growth
Variable annuity
4% withdrawal rule
Systematic income
Annuitization
A diversified portfolio with systematic withdrawals can replicate some annuity benefits at a lower cost, though without the lifetime guarantee an annuity provides.
Decision Matrix
Your Situation
Fixed Annuity
Variable Annuity
Neither
Haven’t maxed 401(k)/IRA
✅
Need guaranteed income
✅
Want growth + income floor
✅ (with GLWB)
10+ years to retirement
✅ (low-cost only)
Very risk-averse
✅
Want liquidity
✅
High-cost product offered
✅
Near/in retirement
✅
Red Flags When Buying Annuities
Warning Signs
Red Flag
Why It’s a Problem
Surrender period 10+ years
Too long to lock up money
Total fees over 2.5%
Eats returns
“Bonus” products
Often have higher fees to offset
High-pressure sales tactics
Complex products need time to evaluate
Free dinner seminars
Often push high-commission products
Guaranteed returns significantly above current Treasury rates
Likely misrepresenting the product
Recommending to young investors
Usually inappropriate
Commission over 5%
Salesperson incentive misaligned
The Bottom Line
Fixed vs Variable Annuity: The Verdict
Factor
Winner
Notes
Safety
Fixed
Principal guaranteed
Growth potential
Variable
Market exposure
Simplicity
Fixed
Easy to understand
Fees
Fixed
Much lower
Income certainty
Fixed
Guaranteed payments
Inflation protection
Variable
Growth can outpace inflation
Flexibility
Variable
More options (with riders)
For most people
Neither
Max retirement accounts first
When to Consider an Annuity
You’ve maxed your 401(k), IRA, and HSA — No contribution limits means free money and tax benefits first
You understand the product — Read everything, calculate total fees
You have a long surrender period tolerance — 7-10 years locked up
The fees are reasonable — Under 1.5% for variable, clear rate for fixed
You genuinely want guaranteed income — Not just sold by a salesperson
For most people, maxing tax-advantaged accounts with low-cost index funds beats any annuity. But for those who want genuine income guarantees and have already maximized other options, the right annuity can provide valuable peace of mind.
WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy
