What is the difference between fixed annuities and variable annuities?

Fixed annuities and variable annuities differ in how the funds are invested and the level of risk involved. With fixed annuities, the funds are invested by the insurance company, typically in low-risk instruments such as government bonds or corporate debt. This guarantees a fixed rate of return over a specified period of time, providing a stable income stream. On the other hand, variable annuities allow policyholders to choose from a range of investment options, including stocks, bonds, and mutual funds. The return on investment is not fixed and fluctuates depending on market performance. While variable annuities offer potential for higher returns, they also carry higher risks. Their value can decrease and policyholders can face losses due to market volatility. In summary, fixed annuities provide stability and predictability, while variable annuities offer more potential for growth but come with increased risk.