What characterizes a fixed annuity?

A fixed annuity is characterized by providing a guaranteed minimum rate of interest. This means that the insurance company issuing the fixed annuity commits to paying the annuitant a specific interest rate on their investment, regardless of market conditions or the performance of underlying assets. This feature is particularly appealing to individuals seeking stability and predictability in their retirement income.

Fixed annuities are designed to protect the principal investment, ensuring that while the interest rate may fluctuate over time based on the terms of the contract, there is a baseline level of return that the annuitant can expect. This allows individuals to plan their finances with more certainty, knowing that their investment will grow at a known rate over time.

The other options present characteristics associated with different types of annuities or investment vehicles. Some annuities may indeed involve variable returns based on mutual fund performance, allow for flexible payout schedules, or let the holder choose specific investments, but these do not apply to fixed annuities.