When you retire, the biggest question is not just “How much have I saved?”
The real question is:
“How do I turn my savings into reliable income for the rest of my life?”
As your financial guide today, I want to walk you step-by-step through one of the most important retirement income decisions: Fixed vs Variable Annuities for Retirees.
We will break this down clearly, with:
- Simple explanations
- Real dollar calculations
- Pros and cons
- Risk comparison
- Inflation impact
- Smart retirement strategies
Let’s begin.
First, What Is an Annuity?
An annuity is a contract between you and an insurance company.
You give them a lump sum of money.
In return, they promise to pay you regular income — often monthly — for a certain number of years or even for the rest of your life.
Think of it like creating your own personal pension.
Example
You invest: $200,000
You receive: Monthly income for life
This helps solve a major retirement fear:
✔ Running out of money
✔ Market crashes
✔ Living longer than expected
Now that you understand the foundation, let’s move to the two main types retirees compare.
What Is a Fixed Annuity?
A Fixed Annuity gives you a guaranteed interest rate and predictable income.
The insurance company promises:
- Your principal is protected
- Your interest rate is fixed
- Your payments are stable
No matter what happens in the stock market, your income does not change.
Example With Dollar Calculation
Let’s say:
You invest: $150,000
Guaranteed rate: 4.5% annually
Yearly income:
$150,000 × 4.5% = $6,750 per year
Monthly income:
$6,750 ÷ 12 = $562.50 per month
That means you receive $562 every month regardless of market ups and downs.
This is why fixed annuities are often called:
✔ Safe
✔ Predictable
✔ Conservative
But safety comes with a trade-off.
What Is a Variable Annuity?
A Variable Annuity works differently.
Instead of a guaranteed interest rate, your money is invested in market-linked subaccounts (similar to mutual funds).
Your returns — and sometimes your income — depend on how the market performs.
That means:
✔ Potential for higher growth
❌ Risk of lower returns
Example With Market Growth
You invest: $150,000
Year 1 Market Growth: +10%
New balance:
$150,000 × 10% = $15,000 gain
Total = $165,000
If payout rate is 4%:
$165,000 × 4% = $6,600 yearly
$6,600 ÷ 12 = $550 per month
Now imagine Year 2 market decline: -8%
$165,000 × 8% loss = $13,200 drop
New balance = $151,800
New yearly payout (4%):
$151,800 × 4% = $6,072
Monthly = $506
See the difference?
Income can rise or fall.
That’s the key trade-off.
Side-by-Side Comparison
Let’s make this simple.
| Feature | Fixed Annuity | Variable Annuity |
| Income Stability | Guaranteed | Depends on market |
| Principal Protection | Yes | No |
| Growth Potential | Moderate | High |
| Risk Level | Low | Medium to High |
| Fees | Usually lower | Usually higher |
Now ask yourself honestly:
Can you handle income fluctuations in retirement?
If yes → Variable might work.
If no → Fixed may give peace of mind.
Understanding Risk in Retirement
Risk feels different when you’re 30 vs when you’re 65.
At 30:
You have time to recover from losses.
At 65:
You depend on income for daily living.
Let’s imagine:
You need $4,000 per month to cover:
- Housing
- Food
- Healthcare
- Utilities
If your annuity income drops $400 per month due to market decline, can your lifestyle handle that?
This is why many retirees prefer stability.
But there’s another factor we must discuss — inflation.
The Inflation Problem
Fixed payments feel safe — but inflation slowly reduces purchasing power.
Example:
Today you receive $2,000 per month.
If inflation averages 3% annually:
In 10 years, that $2,000 has the buying power of about $1,488.
Calculation
Future Value Impact:
$2,000 ÷ (1.03)^10 ≈ $1,488
That means your fixed income may buy less over time.
Variable annuities may help offset inflation if markets grow.
But again — growth is not guaranteed.
Fees Matter More Than You Think
This is where many retirees make mistakes.
Variable annuities often include:
- Mortality & expense fees
- Administrative fees
- Investment management fees
- Optional rider charges
Total fees can range between 2% to 4% annually.
Let’s calculate the impact.
Investment: $200,000
Annual return: 7%
Fees: 3%
Net return:
7% – 3% = 4%
Without fees:
$200,000 × 7% = $14,000 growth
With fees:
$200,000 × 4% = $8,000 growth
That’s a $6,000 difference per year.
Over 15 years, that gap becomes significant.
Fixed annuities usually have simpler and lower fee structures.
Always read the contract carefully.
Who Should Choose Fixed Annuities?
Fixed annuities may be suitable if:
✔ You want guaranteed income
✔ You dislike market volatility
✔ You rely heavily on retirement income
✔ You prioritize safety over growth
They work well for:
- Conservative retirees
- People with limited risk tolerance
- Those who already have enough savings
Now let’s talk about who might consider variable annuities.
Who Should Choose Variable Annuities?
Variable annuities may be suitable if:
✔ You want higher growth potential
✔ You have other guaranteed income sources (like Social Security)
✔ You can tolerate market swings
✔ You want inflation protection potential
They work well for:
- Retirees with longer life expectancy
- Those comfortable with investment risk
- Individuals seeking legacy growth
But you don’t always have to choose only one.
A Balanced Strategy for Smart Retirees
Many retirees use a blended approach.
Example Portfolio
Total retirement savings: $500,000
- $250,000 in Fixed Annuity
- $150,000 in Variable Annuity
- $100,000 in liquid investments
Why this works:
✔ Fixed portion covers essential expenses
✔ Variable portion offers growth potential
✔ Liquid funds provide flexibility
This approach creates both security and opportunity.
What About Lifetime Income Riders?
Some variable annuities offer riders that guarantee minimum income even if markets fall.
But riders cost extra — often 0.5% to 1% annually.
Example
$300,000 annuity
Rider cost: 1%
$300,000 × 1% = $3,000 per year fee
Is the protection worth $3,000 annually?
That depends on your comfort level with risk.
Always calculate before deciding.
Questions You Should Ask Before Buying
Before choosing fixed vs variable annuities, ask:
- How much guaranteed income do I need monthly?
- What percentage of my income can tolerate fluctuation?
- What are the total annual fees?
- Are there surrender charges?
- How long is my investment locked in?
- What happens to the money if I pass away?
Never rush this decision.
Retirement income planning is too important.
Also Read: Best Capital Preservation Investment For Seniors
Final Thoughts: Fixed vs Variable Annuities for Retirees
There is no universal “best” choice.
Only the best choice for your goals, risk tolerance, and financial situation.
Fixed Annuities offer:
✔ Stability
✔ Guaranteed income
✔ Peace of mind
Variable Annuities offer:
✔ Growth potential
✔ Inflation hedge
✔ Higher income possibility
But they come with market risk and higher fees.
As your advisor, I would tell you this:
Secure your essential living expenses first.
Then take calculated risks with the remaining funds.
Retirement is about confidence — not stress.
The right annuity strategy should help you sleep better at night.
