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Flexible premium deferred annuity: What it is & how it works

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To live your ideal retirement, you'll want the savings you're building now to last through your later years. Annuities can offer a lifetime income stream in retirement, protecting you from that risk of outliving your savings. But annuities come in different forms, and the cost should align with your current financial goals.

A flexible premium deferred annuity lets you contribute to an annuity over time. You contribute to your annuity on an ongoing basis or whenever you wish.

What is a flexible premium deferred annuity?

An annuity is an insurance product you purchase in exchange for a steady stream of retirement income. With a flexible premium deferred annuity (FPDA), the main differentiators lie in the two key terms:

  • Flexible. This ties back to how you purchase the annuity. Some annuities require you to pay a single lump sum. With an FPDA, after you make the first contribution, you may make additional contributions whenever you choose.
  • Deferred. This term specifically refers to when you begin receiving annuity payments. With deferred annuities, your annuity has the potential to grow in value during an accumulation period and you start receiving payments later, at a future point that you decide.

Your taxes are also deferred during the accumulation phase. You only owe taxes when you withdraw your money.

Who should consider a flexible premium deferred annuity?

Flexible premium deferred annuities may be a particularly great option if you can't commit a large amount of money upfront but want to include an annuity in your financial plan. If you decide that you want an annuity, the time to buy one is generally when you’re in your late 50s or early 60s and looking forward to retiring in the next decade or so.

Types of flexible premium deferred annuities

FPDAs can also be categorized based on how your annuity may accrue value—through a fixed interest rate, through interest tied to an index, or through potential gains on variable subaccounts. It's an important distinction, as it could impact the amount of income you're able to withdraw in retirement.

1. Fixed annuities

With fixed annuities, you earn a guaranteed minimum interest rate for the life of the contract. A current rate, which may be higher, will be reset annually. In this case, the guaranteed minimum interest rate is written into your contract so you know the minimum interest applied. This makes it a conservative retirement product and eliminates uncertainty.

One downside of fixed annuities is that their growth can be lower than other annuities, and that growth may not keep up with inflation.

2. Fixed indexed annuities

Fixed indexed annuities' growth depends on the performance of the specified index. In addition, most fixed indexed annuities have a cap. This means if the index performs above a certain level, the interest applied to the fixed indexed annuity will be limited by the cap.

For example, suppose your contract caps growth at 7%. Even if the index increases by 11%, your contract will only be credited with a 7% increase.

3. Variable annuities

With variable annuities, your premiums are invested in the variable subaccounts you choose. Gains and losses depend on the performance of these subaccounts. You may have a wide range of options, from conservative bond funds to more aggressive stock funds.

Although you may earn a higher rate of return over time, you're exposed to market fluctuations and can lose money.

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Not sure which type of annuity is right for you?

Learn about the four basic types and their features.

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Is an FPDA right for you?

A secure source of retirement income can make you feel more at ease about your finances and allow you to focus on the important things in life, like spending time with family and being involved in your community.

Premium flexibility may make it easier to contribute to an annuity. If you'd like to learn more about how an FPDA works, contact a Thrivent financial advisor who can help you assess how the pros and cons align with your goals.

Hypothetical examples are for illustrative purposes. May not be representative of actual results.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Surrenders or partial withdrawals/surrenders may be subject to income taxes and/or surrender charges. Withdrawals made prior to the age of 59½ may be subject to a 10% federal tax penalty.

Investing involves risk, including the possible loss of principal. The prospectus and summary prospectuses of the variable annuity contract and underlying investment options contain information on investment objectives, risks, charges and expenses, which investors should read carefully and consider before investing. Available at

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits. 

Guarantees based on the financial strength and claims-paying ability of the issuer.