Variable Vs. Fixed Annuities: What To Know

Written by Ariel Stern Updated April 30, 2026

When you shop for an annuity, one of the first decisions you'll want to make is which type best fits your financial goals and risk tolerance.

There are two broad camps of annuities: variable and fixed. While both types offer tax-deferred growth and lifetime income options, the similarities end there. The differences in fees, risk, and flexibility are stark.

We’re going to look at the differences between fixed and variable annuities. However, there are four major types of fixed annuities that serve different purposes. To simplify, we’ll break them down into:

Income Annuities: built to provide you with guaranteed income.

• Immediate Annuities
• Deferred Income Annuities

Growth Annuities: built to safely grow your money

• Multi-Year Guarantee Annuities
• Fixed Index Annuities

If you’re just starting out with annuities, check out our Annuity Shopper Buyer’s Guide. It’s a great resource for getting your bearings while also being comprehensive enough to answer many of your questions.

The core difference: Where does your money go?

The main difference between variable and fixed annuities is where your money goes when you purchase an annuity. This impacts your potential earnings, risk, and even fees.

Variable Annuities

With a variable annuity, your money is directly invested into market funds (typically mutual funds). You get to choose your asset allocation and can often shift it over time.

• The Upside: Unlimited growth potential from being directly invested in the market
• The Downside: Much higher risk profile. Your variable annuity is invested in the market, meaning market crashes can also crash your variable annuity’s value.

Fixed Annuities

When you purchase your fixed annuity, the insurer manages the underlying investments. You are protected from market volatility.

• The Upside: Growth based annuities either grow your money at a fixed rate (multi-year guarantee annuities) or protect you from losses while capping your earnings (fixed index annuities). Income annuities provide you with a guaranteed quote that guarantees your payout rate.
• The Downside: Your earnings are limited with growth based annuities. Income annuities are focused on guaranteeing you income; they do not grow your premium and often have no account value. You can lose money with an income annuity if you choose a payout option with no death benefit and die early.

Are the fees different with variable and fixed annuities?

Yes, the fees are significantly different. Generally speaking fixed annuities have transparent fee structures which are much lower. Variable annuities generally have many more fees, some of which may not be readily apparent.

Variable Annuities

Variable annuities are notorious for having many fees that quickly add up. You can be charged management fees, mortality and expense risk fees, administrative fees, and more directly from the insurance company. Your investment options may also come with loads or fees (mutual funds often have such fees). On top of that, the insurer may charge you to reallocate your funds.

These small fees add up quickly and can really eat into your earnings. Remember, your fees are still due during market declines which can accelerate your losses.

Fixed Annuities

Fixed annuities generally have much lower fees, with some types having no fees.

• Income annuities: generally are no fee products. The insurance company earns money on the spread between their investments and what they pay you.
• Multi-year guarantee annuities: generally no fee, though some have optional riders that come at very modest fees (usually 0.1 to 0.4% annually).
• Fixed index annuities: While the base contract is typically no fee, if you want a guaranteed lifetime income benefit, you typically have to purchase an income rider (usually around 1% per year).

With any annuity, make sure you ask your agent upfront if there are any ongoing fees associated with the product. You can also check out our article about commissions to learn more about how agents are paid.

Which is more flexible, variable annuities or fixed annuities?

While it might seem like variable annuities are more flexible, this is not always the case. It depends on the type of fixed annuity you are considering.

Variable annuities and fixed growth annuities have a set term. If you hold your annuity to the end of the term, you can move the money where you want free of charge. If you try to take the money out early, some contracts have withdrawal allowances. If you want to remove more than you are allowed during the term, there are often surrender charges and market value adjustments.

Income annuities are far less flexible and liquid than growth based or variable annuities. Income annuities “annuitize” your money. This is a very special process that provides you with some tax benefits, but it also severely limits your access to your premium. While some income annuities may have limited liquidity features, exercising these features is often expensive so it is generally best to think of them as illiquid.

Can I get guaranteed lifetime income from a variable or fixed annuity?

Yes, you can get this from nearly any type of annuity with a few caveats.

• Income annuities: these are built to provide guaranteed income. If you choose a lifetime payout option, you will be paid for life.
• Fixed growth or variable annuities: you can use an optional income rider which allows you to turn your annuity into a guaranteed income stream. While often free for multi-year guarantee annuities, fixed index and variable annuities often charge a fee to include an income rider.

You can also wait until the term is complete for your variable or growth annuity. Then you can do a 1035 exchange into an income annuity. This is often a great option because you can shop for the best income rate while also getting the tax benefits of an income annuity.

Can you simplify the differences between a variable and fixed annuity for me?

Sometimes it’s best just to look at a chart to find the answers to your questions. Check out our chart below that outlines the general differences between variable and fixed annuities.

Which is right for you, a variable or fixed annuity?

As is often the case with financial decisions, the best option depends on your retirement portfolio and goals. You should be honest with yourself about your risk tolerance and financial goals.

When you consider your options, make sure you understand when illustrations are guaranteed or hypothetical. Variable and fixed index annuities often showcase hypothetical charts to show how the annuity might function. But a hypothetical is not guaranteed, and your annuity may perform much worse depending on overall market conditions.

Questions about annuities?

If you have questions about annuities, call our U.S.-based annuity experts at (866) 866-1999. We have decades of experience helping people find the right annuity. Customer service is our core value; you can see it in our customer reviews.

We have a strict no sales pressure philosophy. We are happy to answer your questions to help you find the right annuity. You can run quotes for free on our website, no phone number required. We want to help you understand your annuity options, so you can make the best financial decision for your retirement.

References

• Variable Annuities: What You Should Know, Securities and Exchange Commission.
• Annuities, Investor.gov.