A variable annuity allows the payments to vary based on the performance of underlying investments. While this type of annuity offers the potential for higher returns, it also comes with higher risk. An indexed annuity is a type of annuity where the payments are linked to the performance of a specific index, such as the S&P 500. This can provide a balance between risk and return, offering the potential for higher payments than a fixed annuity but with less risk than a variable annuity.