Darcy Bergen believes that an annuity is a financial product that provides regular payments over a set period, often for the rest of an individual's life. Several types of annuities are available on the market, including indexed and fixed ones. While both offer guaranteed income streams, there are notable differences between the two that potential buyers should be aware of. A fixed annuity is a contract between an individual and an insurance company. The purchaser makes a lump-sum payment to the insurer, who then agrees to pay a fixed interest rate over a set period. The current interest rates typically determine this rate when the contract is signed, and it does not change throughout the annuity's life.

On the other hand, an indexed annuity provides returns based on the performance of a stock index, such as the S&P 500. This type of annuity offers the potential for higher returns than a fixed annuity but also carries more risk due to fluctuations in the stock market. Most indexed annuities have a minimum guaranteed interest rate paid out regardless of market performance to mitigate this risk.

One of the primary benefits of a fixed annuity is the stability it offers. Because the interest rate is fixed, the purchaser knows exactly how much they will receive each month, making it easier to plan for the future and budget accordingly. Additionally, fixed annuities are usually less expensive than their indexed counterparts because less risk is involved.
On the other hand, indexed annuities offer the potential for higher returns than fixed annuities because they are tied to the stock market's performance. However, they come with more risk and may have higher fees. They are a good option for individuals who are willing to take on some risk in exchange for the potential of higher returns.

Another key difference between fixed and indexed annuities is how interest is credited. With a fixed annuity, interest is credited on an annual basis. This means that even if interest rates rise over the year, the purchaser will only receive the rate in effect when the contract was signed. In contrast, indexed annuities typically credit interest on a monthly or quarterly basis, allowing the purchaser to take advantage of any gains in the stock market throughout the year.

Regarding taxes, both types of annuities offer tax-deferred growth, which means that taxes are not due on any earnings until they are withdrawn from the account. However, if withdrawals are made before the age of 59 ½, there may be penalties assessed.
In conclusion, both fixed and indexed annuities offer guaranteed income streams, but each has its own set of advantages and disadvantages. Fixed annuities offer stability and lower costs, while indexed annuities offer the potential for higher returns but come with more risk. Ultimately, the best option depends on an individual's financial situation, risk tolerance, and long-term goals. Before making any decisions, it is important to speak with a financial advisor who can provide guidance and help determine which type of annuity is right for you.