As always in finance, the answer is that it depends on the purchaser. The key decision variable is whether the annuitant really needs a fixed periodic payment. Only those who need the fixed income should choose a fixed annuity because there is a danger that inflation over several years could seriously reduce the purchasing power of the fixed payments.

As a general rule, anyone under the age of 60, or anyone needing the tax deferral, should opt for a variable annuity. The variable annuity protects against inflation because its payments can and do change according to the performance of the investments within the annuity.

For people who are just below the top tax bracket, there is an interesting investment strategy using a fixed annuity paid for with non-tax deductible funds in which the payments are invested in mutual funds.

Source: Alfred Kahl, PhD., Independent Financial Consultant, Annuity.net