Annuities

An annuity:

• Is a contract between you and an insurance company to cover specific goals, like helping you accumulate money for retirement through tax deferral, providing guaranteed income, or both.
• Can contain features that can be added for a fee.  These features can help you grow your retirement savings and may provide some protections in down markets.

The benefits, features, fees and expenses are important considerations and can be discussed with your financial advisor.

It's a personal decision, and many factors should influence your decision on when to purchase one—including your age, financial situation, retirement goals, risk tolerance and health. Get in touch with a Thrivent financial advisor for personalized help in determining how annuities may fit your overall financial strategy.

You should consider buying an annuity if you’re building a retirement plan. Common times and life events that should trigger annuity consideration, including nearing retirement age, having limited funds in a pension account and worrying about outliving your retirement savings.

Annuities may provide a source of guaranteed lifetime income in retirement, helping minimize the risk of outliving your money. However if you are in poor health, that should be a consideration before you would elect a lifetime income. Annuities could also be the wrong choice if they don't align with your overall financial strategy or goals.

Annuities come in many shapes and sizes. Depending on if income is needed now or in the future and what level of risk you are comfortable with. Some annuities also offer optional riders for additional fees that could enhance a death benefit or help protect during times of market volatility.

With all the options and tax considerations its important to discuss with your financial advisor what type of annuity could work for you and your goals.

Fixed rate and fixed indexed annuities are both contracts that guarantee no loss of principal due to market performance. The main difference is how interest is calculated. With a fixed rate annuity, your contributions grow tax-deferred at a guaranteed minimum interest rate. But with a fixed indexed annuity, any interest is tied to the performance of a specific market index, such as the S&P 500. Returns are typically subject to a specified cap. However, if the index experiences a loss, the annuity’s value does not decrease. Also, if the market index suffers losses, no interest will be applied that contract year.

The key difference between fixed and variable annuities is that fixed annuities accumulate interest at a specified rate, while performance fluctuates due to the underlying investments of a variable annuity. With a fixed annuity, your premiums grow at a guaranteed rate of return. So your annuity’s value will be more predictable at the time you annuitize and begin receiving guaranteed payouts. This differs from a variable annuity, where your premiums are invested in subaccounts like stocks, bonds and money markets during the accumulation phase. Higher returns will make for higher payouts once you annuitize, while losses typically result in smaller payouts.

An immediate annuity is an insurance contract that can turn your retirement savings into a guaranteed income stream. You make a lump-sum contribution, and it converts it into a series of payments for a set period of time. Unlike other types of annuities that have longer waiting periods before you can begin a guaranteed income stream, with an immediate annuity, it’s probably no surprise that you may receive your guaranteed payment right away, or at least within the first year you buy it.

While an immediate annuity begins distributing your payouts almost right away, your payouts with a deferred annuity are just that: deferred. You may fund a deferred annuity, like an immediate annuity, with a lump sum, but you have the additional option to fund the annuity with contributions over time. You may begin withdrawing money out of a deferred annuity federal tax penalty-free once you reach age 59½.

A deferred annuity is contract between you and an insurance company that is designed to provide guaranteed income later in life, usually during retirement. These types of annuities are known as deferred annuities because you are allowing your money to be invested, growing tax-deferred before taking income (with a variable annuity, depending on your investment choices, the value of your annuity may go down). You may fund a deferred annuity with a lump-sum contribution or a series of contributions over time. During the accumulation phase, your principal has the potential to grow tax-deferred until you start taking withdrawals at a future date you specify (once you turn 59 ½, withdrawals are federal tax penalty-free).