However, exceptions are made for early withdrawals for medical expenses or disabilities and if you take the money out in equal installments over your lifetime. Fixed annuities pay a predetermined amount of money in regular installments. This is known as a fixed rate of return on your investment. You can fund it by lump sum or periodic premium payments. But the insurance company invests that money for you, usually in government bonds, mortgage securities, corporate bonds and other fixed-income investments.
Variable annuities provide payouts based on the value of underlying mutual fund investments.
Known as subaccounts, those mutual funds yield varying rates of return that can increase or decrease how much you collect. The customer selects how the money is invested in those mutual funds. Typically, money can be transferred between funds tax-free. However, it is unusual to get a guaranteed minimum return on a variable annuity. When buying an annuity, pay close attention to the financial soundness of the insurance company selling it.