We get asked this a lot: "What's the difference between a fixed vs variable annuity?"
The short answer is that we don't sell variable annuities. We never have. And as annuity experts, we're more convinced than ever that it's the right call.
This isn't a balanced, on-the-one-hand-on-the-other-hand comparison. We have an opinion, and we're going to share it. You can decide for yourself.
The Core Difference in 30 Seconds
A fixed life annuity gives you a guaranteed monthly payment for life. You know exactly what you'll receive before you sign the contract. Zero fees. Zero market risk.
A variable annuity puts your money into market-linked subaccounts — basically mutual funds inside an insurance wrapper. Your value goes up and down with the market. You pay 2–3% in annual fees for the privilege. And nothing is guaranteed unless you buy an additional rider, which costs even more.
One is a paycheck. The other is a gamble with a fee problem.
The Fee Problem
Let's be honest about what variable annuities actually cost. The average variable annuity charges roughly 2.5% per year in total fees. Here's where that money goes:
- Mortality & expense (M&E) charge: 1.0–1.5% per year
- Administrative fees: 0.10–0.30% per year
- Underlying fund expenses: 0.50–1.0% per year
- Optional income rider (if you want any guarantee at all): 0.75–1.25% per year
Stack those up and you're looking at 2.5% to 4% annually. On a $200,000 variable annuity, that's $5,000 to $8,000 per year pulled out of your account before you see a dime of growth.
A fixed life annuity from New York Life, MassMutual, or Pacific Life? Zero annual fees. The carrier's costs are baked into the rate they quote you upfront. There's no meter running in the background.
What Fees Actually Do to Your Money
Numbers don't lie. Here's a 20-year comparison on $100,000:
| Fixed Life Annuity (SPIA) | Variable Annuity | |
|---|---|---|
| Starting amount | $100,000 | $100,000 |
| Annual fees | $0 | ~$2,500/yr (2.5%) |
| Gross market return needed to match | N/A — guaranteed income | 7%+ just to net 4.5% |
| Total fees over 20 years | $0 | $40,000–$60,000 |
| Income guaranteed? | Yes — for life | Only with extra rider fee |
| Can you lose money? | No | Yes |
Over 20 years, the variable annuity holder pays $40,000 to $60,000 in fees. And they still have market risk. The fixed annuity holder paid zero in fees and received guaranteed income every single month.
Why Do Advisors Recommend Variable Annuities?
Here's what actually happens in the industry, and most websites won't tell you this.
Variable annuities pay significantly higher commissions to the advisors who sell them. A typical variable annuity pays the selling agent 5–7% of the premium upfront. On a $200,000 variable annuity, that's $10,000 to $14,000 to the advisor.
A fixed immediate annuity pays 1–3%. Same $200,000, the advisor earns $2,000 to $6,000.
We're not saying every advisor who recommends a variable annuity is acting in bad faith. But when one product pays three times the commission of another, the incentives are misaligned. Ask any advisor recommending a variable annuity to disclose their commission. If they won't, that tells you something.
The Complexity Problem
Variable annuity contracts are often 150–200 pages long. There are subaccount menus, rider elections, step-up provisions, death benefit calculations, surrender schedules, and fee disclosures buried in footnotes.
A fixed life annuity contract is straightforward. You invest $X. You receive $Y per month. For life. The contract spells out the payment amount, the start date, and the beneficiary provisions. That's essentially it.
We think retirement income should be simple enough that you can explain it to your spouse over dinner. Try doing that with a variable annuity contract.
But What About the Growth Potential?
This is the main argument for variable annuities, and it's not wrong in theory. If the stock market returns 10% in a year and your variable annuity is invested in equities, your account grows — minus those fees.
But here's the thing. If you wanted market exposure, you can get it for 0.03% per year through a Vanguard index fund. You don't need to wrap it inside an insurance product that charges 2.5%.
The tax-deferral benefit of a variable annuity sounds attractive, but you surrender the favorable capital gains tax rate. All withdrawals from a variable annuity are taxed as ordinary income. For most retirees, that's a bad trade.
If you want market growth, use the market directly. If you want guaranteed income, use a fixed life annuity. Combining them into one expensive product doesn't serve you well.
When a Variable Annuity Might Make Sense
We're opinionated, but we're not unreasonable. A variable annuity could arguably work if:
- You've maxed out all other tax-advantaged accounts (401k, IRA, Roth)
- You have a very long time horizon — 15+ years before needing income
- You understand and accept the fee structure
- You're comfortable with the possibility of losing money
That's a narrow set of circumstances. For most people approaching retirement who need reliable income, it's not the right tool.
The Fixed vs Variable Annuity Decision, Simplified
| If you want... | Choose |
|---|---|
| Guaranteed income you can't outlive | Fixed life annuity |
| Zero annual fees | Fixed life annuity |
| Simplicity you can explain in one sentence | Fixed life annuity |
| Protection from market crashes | Fixed life annuity |
| Market-linked growth potential (with fees and risk) | Variable annuity |
| Tax-deferred growth beyond IRA/401k limits | Variable annuity (maybe) |
Already Own a Variable Annuity?
If you're currently in a variable annuity and thinking about switching, there's a tax-free way to do it. A 1035 exchange lets you transfer the value of one annuity into another without triggering taxes. You'll want to check your surrender charges first — if you're past the surrender period, the exchange is clean.
We help clients do this regularly. Call us at 800-747-4201 and we'll review your current contract, calculate the surrender charges if any, and show you what your money could produce in a fixed life annuity. No cost for the analysis.
Our Position
We sell fixed life annuities because they do one thing and do it well: provide guaranteed monthly income for life with no fees and no market risk. That's what our clients need, and it's what we believe in.
Variable annuities serve the insurance industry's revenue model better than they serve retirees. The fees are high, the complexity is unnecessary, and the guarantees are either absent or cost extra.
Run your numbers through our calculator or request a free quote. See what a fixed life annuity actually pays on your specific amount. Then compare that to whatever a variable annuity is offering you — after fees.
The math usually speaks for itself.
