In Annuities for Dummies: A Buyers Guide, annuities expert witness Stephen George writes:
Carriers sell three types: Fixed, Indexed-Linked, and Variable. Fixed and Equity Indexed annuities guarantee no risk of loss if held to term. Variable annuities do have market risk. Indexed-Linked annuities guarantee minimum interest, plus index growth participation. Variable Annuities do not guarantee minimum interest or principal safety, but generally offer higher returns than Fixed or Indexed-Linked annuities. Annuities require tying principal up for a certain term, or paying surrender charge penalties for early withdrawal. Money in 401 or retirement plans invested in the market is much riskier than Indexed-Linked Annuities guaranteeing principal safety. Although the investment income portion of most annuity distributions is taxed at ordinary income tax rates, taxes are deferred until annuity withdrawals and distributions, making them ideal for seniors maximizing their income over a fixed period, or managing taxes paid on Social Security benefits.
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