What are the two primary types of annuities?

The two primary types of annuities are fixed annuities and variable annuities.

Fixed annuities provide a guaranteed rate of return and a set income stream, creating a stable and predictable source of income for the annuitant. This type of annuity is particularly appealing for individuals seeking security and known repayment amounts since the insurance company assumes the investment risk.

On the other hand, variable annuities allow the annuitant to allocate their premiums among a range of investment options, typically including mutual funds. The potential return on a variable annuity is tied to the performance of these investments, which can lead to higher returns compared to fixed annuities, but also introduces the risk of loss.

Understanding the distinctions between these two types is crucial for individuals seeking to create a retirement income strategy that suits their financial goals and risk tolerance. Each type serves different purposes, catering to the varying needs of consumers in terms of security and growth potential.