Fixed vs. Indexed Annuities: What’s the Difference?
As you plan for retirement, protecting your nest egg becomes just as important as growing it. For many retirees, annuities offer a reliable way to turn savings into steady income—but not all annuities are created equal. Two of the most common options are fixed annuities and indexed annuities, and while both can offer guarantees, they serve slightly different purposes.
Understanding the difference can help you decide which option better fits your long-term financial goals, especially when it comes to protecting against market risk and ensuring predictable income.
What Is a Fixed Annuity?
A fixed annuity is one of the most straightforward types. You give an insurance company a lump sum or make a series of payments, and in return, they provide you with a guaranteed interest rate for a set period—similar to a CD (certificate of deposit), but usually with tax-deferred growth.
Pros of Fixed Annuities:
Guaranteed interest rate
Predictable growth
Low risk
Tax-deferred accumulation
Fixed annuities are ideal for conservative investors who value stability and don’t want to worry about market fluctuations.
What Is an Indexed Annuity?
Indexed annuities offer a middle ground between fixed and variable annuities. Instead of a guaranteed interest rate, your returns are tied to the performance of a market index, like the S&P 500. But unlike investing directly in the stock market, indexed annuities protect your principal—you won’t lose money if the index performs poorly.
Pros of Indexed Annuities:
Potential for higher returns than fixed annuities
Principal protection (no market losses)
Often includes guaranteed income options
Tax-deferred growth
Indexed annuities typically come with caps, participation rates, and spreads, which limit how much of the market’s upside you can earn—but that’s the trade-off for protecting your downside.
Which One Is Right for You?
Choosing between fixed and indexed annuities depends on your personal goals:
Want guaranteed growth with no surprises? A fixed annuity may be the better fit.
Want to participate in market gains without risking losses? An indexed annuity could offer more flexibility and earning potential.
In some cases, a blend of both may offer the best of both worlds—guaranteed income and growth potential.
Still unsure which annuity option makes sense for you? Let’s talk. At Sound Retirement Solutions, our retirement planners are here to help you understand your options and build a customized strategy to protect your future income—no market guessing required. Schedule your annuity review today and gain peace of mind for retirement.
