How do fixed annuities typically function?

Fixed annuities typically function by providing a guaranteed minimum interest rate on the funds invested. This means that the investor is assured a specific rate of return, which does not fluctuate based on the performance of underlying investments. Unlike variable annuities, where returns can depend on market performance, fixed annuities provide stability and predictability, making them appealing to those who are risk-averse and seeking a secure income stream, especially in retirement.

As for the other options, it is important to understand how they differ from the characteristics of fixed annuities. Investment performance-based options would generally apply to variable annuities, which are designed to gain or lose value based on market conditions. Flexible investment options are more characteristic of the structures seen in variable products, which allow for changes in investment allocations. High-risk levels are typically associated with investments that have potentially higher returns but also come with significant volatility, which is not a feature of fixed annuities known for their conservative approach to safeguarding capital. Thus, the essential nature of fixed annuities lies in their promise of a guaranteed return, highlighting their function aligned with stability and security.