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What's the difference between fixed & fixed indexed annuities?

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When considering retirement planning, it’s important to find a strategy that best fits your life—for today and in tomorrow. Annuities may help ensure you have the income you need to live the life you want after you retire.

While fixed and fixed index annuities sound similar, there are some key differences to sort through before deciding on the right one for you.

 In this article, we’ll cover:

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What's the difference between fixed & indexed annuities?

The main differences between a fixed annuity and a fixed index annuity are the risk levels and how interest is calculated.

A fixed annuity is an annuity contract designed for retirement income that guarantees a specific rate of return, such as 3%, regardless of market performance.

  • With a fixed interest rate, you know in advance how much your annuity will grow and how much income it will pay out. This predictability is particularly helpful for people with a conservative risk tolerance.
  • The returns may come in fixed payments over a set number of years, fixed payments for the rest of your life or in a lump-sum payment.
  • Earnings grow tax-deferred meaning that your tax liability will happen once withdrawals begin.

A fixed index annuity (FIA) is a type of annuity contract designed for steady retirement income that allows your assets to grow tax-deferred.

  • All or some of the interest is linked to a market index, such as the S&P 500, the Nasdaq 100 or the Dow Jones Industrial Average, subject to a cap. This creates the potential for more growth if the index performs well—and, at the same time, your annuity value is protected from any losses due to index performance.
  • Although your annuity’s interest is tied to the index's performance, your money is not directly invested in the market. This means that even in a volatile market, and if the index your annuity is tied to doesn’t perform well, your annuity doesn’t lose its value.

Here’s a look at the key differences between these two types of annuities in more detail.

Fixed annuities are considered lower risk than fixed indexed annuities

Fixed annuities have a guaranteed minimum interest rate so you will receive some interest each year. A fixed indexed annuity has an interest feature tied to a specified index, but subject to a cap. If the index has negative performance, you will receive no interest that year.

Fixed annuities are considered the lowest risk annuity

Fixed annuities may tend to pose less financial risk than other types of annuities and other investment products whose values rise and fall with the market. The predictable, guaranteed interest is one of the most attractive features of a fixed annuity. The return you earn isn't affected by market fluctuations, and the insurance company offering the product takes on all the investment risk.

As with most annuities, if you want to withdraw money from your fixed annuity earlier than scheduled, you’ll likely incur a penalty charge—which sometimes can be hefty. In some cases (depending on when you make the withdrawal and how much you take out), it even can result in a loss of your annuity value.

Fixed indexed annuities have slightly more risk

The interest, if any, on a fixed indexed annuity is tied to an index. Since the interest is tied to a stock market index, the interest credited either will benefit or suffer based on market performance. They can be an attractive option when you want to balance growth and stability in your retirement portfolio.

Like a fixed annuity, fixed index annuities are not particularly liquid investments. If you need to withdraw funds earlier than the annuity’s specified time frame you may face surrender charges as high as 10%.

Fixed annuities have a steady rate of return while fixed indexed annuities have variable rates of return

The rate of return, the guarantees built in, is one of the most notable differences between fixed and fixed indexed annuities.

Fixed annuities guarantee a specific minimum rate of return, as well as a current rate of return declared by the insurance company

The minimum rate of return on fixed annuities may be lower than other types of annuities because of the guarantees built in. However, you trade potentially benefiting from market upswings and not keeping pace with inflation for the predictability.

Fixed indexed annuities interest is tied to the performance of a specified index

Fixed indexed annuities have the benefit of potentially offering a higher rate of interest when the index performs well, but principal protection when the index suffers losses. However, in exchange for this protection against losses, there may be a cap on the maximum interest you can receive. Or your return may be limited to a percentage (for example, 70%) of the index’s actual return rate.

Comparing fixed annuities & fixed indexed annuities

Fixed annuity
Fixed indexed annuity
How it works
Provide a minimum guaranteed interest rate for the life of your annuity contract. It typically also has a current interest rate declared by the insurance company.
Interest, if any, is tied to a specified index, up to an annual cap. For example, a product could have an indexed account where interest is based on how the S&P 500® Index performs, subject to an annual cap.
Taxation on growth
Risk/principal protection
Low risk
Low risk for principal protection, but interest credited fluctuates and may be 0%.
Tied to index performance?
Rate of return
Value grows at a set interest rate. This protects against the risk of market losses. It also limits potential gains, even when the market is up.
Interest depends on index performance and can be both positively and negatively impacted.

Which annuity should you choose?

In addition to understanding fixed annuity vs. fixed indexed annuity differences, there are a few other types of annuities you might want to explore before making a decision.

→ Read: 4 types of annuities: Which is right for you?

Ultimately, the type of annuity most appropriate for you will depend on your investment strategy and risk tolerance. With so many different annuities available on the market today, there is sure to be an option that can help you achieve your financial goals. Connect with a financial advisor to get help evaluating all the different annuity types and selecting an annuity best suited to your needs. They also can help with comprehensive retirement planning, including setting goals, creating savings strategies and navigating the different investment options available.


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This webpage provides general annuities information. It does not contain information specific to a Thrivent financial product. If you are looking for information specific to a Thrivent financial product or your existing annuity contract, please log in and refer to your contract or prospectus document—or visit our annuities product webpage.

Annuities are intended to be long term, particularly for retirement. Product availability and features may vary by state.

Withdrawals and surrenders will decrease the value of your annuity and, subsequently, the income you receive. Any withdrawals in excess of 10% may be subject to a surrender charge. The taxable portion of each annuity distribution is subject to income taxation. If a taxpayer is younger than 59½ at the time of distribution, a 10% federal tax penalty will apply to the taxable portion of the distribution unless a penalty-tax exception applies.

Guarantees based on the financial strength and claims paying ability of Thrivent.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits. Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.