So this is a tough question to answer without more information.
First, you have to consider that the investments are an after thought in this scenario whether they are indexed based or variable (typically fund based). Both investments are primarily tied to market performance in some shape or form.
The reality is that both of these are built on an Annuity chassis. This is where things get a little more complicated, without knowing your current overall financial picture and what products you are looking at its tough to make a recommendation. Each annuity is different and what you should look for: 1) What are the surrender charges (a.k.a your exit strategy) 2) What are the fees associated? 3) Are there any guarantees tied? (Some index annuities have caps, i.e., you can't lose more than 5%, and you can't make more than 15%) 4) Is there a death benefit? 5) What riders are associated with each type? (Is there an income rider?)
Different products offer different solutions. No product is right for every individual. You need to review your current financial picture, what are your goals, and then determine if the product can help you achieve those goals. You have to understand the nuts and bolts, especially with annuities, they just aren't as simple as most think.
I would have to know more about your situation in order to make a recommendation. There are good and bad in both types of annuities in my opinion. In the variable annuity there are separate accounts (investment accounts like mutual funds that fluctuate with the market) and there is usually a fixed account also that offers some lower fixed rate of return. A lot of VA's have high fees so be careful.
In the indexed annuity there is a declared rate account (like the fixed in the variable annuity) and an indexed account. However, the interest in these two accounts once earned is locked in and guaranteed by the claims paying ability of the insurance company. So the strength of the company and their financial ratings matter here as well.
The other thing to be concerned about in the indexed annuity is the crediting method. In other words how the interest in calculated that is linked to the underlying equity index.
If I determine that an index annuity is appropriate for one of my clients the only crediting method that I like is one with NO CAP on earnings but has a small fee that the insurance company charges you (called a spread).
The reason I like this method better is because the high rate of return that the S&P500 for instance earns over a long period of time is possible because of what I call break out years. These are the crazy years that the market goes up over 20%. If you can get all of that minus a small fee you are much better off than if you bought a product that caps your earnings but has no fee (spread) and your average rate of return should be more.
I would also want to know what the reason for the annuity in the first place. Can your goals be attained using investments in a brokerage account which would have lower fees than a VA? Or are you looking for the tax deferral?
There is a lot more to go into but I believe that should help some. Feel free to reach out if you have anymore questions.
Thanks, Ed Smith
As others have commented more info about your situation would be needed but I think we can dispense with that notion as follows. The sole question I would ask is what goal would be met by using these?
Generally speaking indexed annuities have high fees, are mind bendingly complex and rarely deliver on the assurances of the person selling them. They are products to be sold and virtually no one goes out looking for them. Avoid.
A variable annuity could be good depending on the following: are you in a higher tax bracket, have you maxed out all your pretax and Roth IRA options, is this money geared for a longer time horizon, and most importantly is the after tax money? Pretax money already is tax deferred so using it in an annuity is redundant.
If you have the right situation (high tax, long time frame, utilized all the other pretax options, using after tax money) only consider low cost variable annuities. You can get them from providers like Fidelity and Vanguard.