How variable annuities can help support your retirement goals

If you're like most Americans, your primary goal of retirement income planning is to help ensure one thing: you don't outlive your money—so you can focus on your passions, loved ones and life goals with confidence.

Variable annuities can be an excellent tool to help you achieve your retirement goals. Whether you're 30 years out from retirement or looking for guaranteed income now, variable annuities have key benefits to consider at different stages of your retirement journey.

We spoke to Todd Yeiter, a CFP® professional and director of advisor support at Thrivent, about the potential role variable annuities may play in your retirement plans.

What is a variable annuity?

A variable annuity is a type of guaranteed lifetime income product that allows you to invest your principal investment into the market through sub-accounts. In time, this investment may benefit from the market during the accumulation stage of your contract.

As with any investment, there's a risk of losing that initial principal, but there's also the potential for growth. If you choose a contract with a guaranteed lifetime withdrawal benefit (GLWB) rider, you can enjoy guaranteed lifetime income as you invest your money.

You should weigh your annuity options based on when you need retirement income. Depending on your time horizon—or how long you plan to hold certain investments based on when you plan to retire—there are certain ways you may be able to adapt your variable annuity contract to better suit your needs on your road to retirement.

If benefiting from the upside of the market appeals to you, but you're concerned about losing your principal, then you may want to purchase additional market risk protection with your variable annuity. Fortunately, there is an optional income rider designed specifically to provide that protection: the guaranteed living withdrawal benefit rider (GLWB).

With the GLWB, you get two elements of protection: longevity risk and market risk. "A variable annuity with the guaranteed withdrawal benefit is very appealing to those who are 15 years or less to retirement," says Yeiter.

Unlike other investments such as mutual funds, there are additional guaranteed benefits embedded in your annuity contract, especially if you include the guaranteed withdrawal benefit.

"If you die and the market goes down, the contract guarantees your beneficiaries receive at least what you initially put in, regardless of how the market performs," says Yeiter. "It also has guaranteed payout rates, so when you're ready to turn your assets into income, there are guarantees embedded in the annuity contract that may not be available elsewhere in the marketplace."¹

If you have a bit more time on your side, then you may want a variable annuity contract that's focused on growth potential, since the principal has more time to grow in the markets. In this case, you may not want to purchase the guaranteed living withdrawal benefit to avoid the added cost.

However, it's important to note that you can only purchase a GLWB at the onset of the contract, meaning you miss out on market protection. "But if you like the idea of protecting against longevity risk, you still have a number of years to make up for any market losses. Over time, the market historically rebounds and tends to improve," says Yeiter.

The consensus around saving for retirement when you're young is to first max out your 401(k) and IRA before purchasing an annuity because it's the most economical option—you may avoid taxes, fees and other costs associated with guaranteed income contracts.

However, if you know you'll want guaranteed income beyond Social Security that will carry you for the rest of your life, it might make sense to allocate a portion of your money toward a variable annuity now. That way, when you reach retirement, you have that guarantee.

According to Yeiter, "a variable annuity could certainly be appropriate even if you're 30 years out from retirement. If you know you want some of that guaranteed income, you'll have those guarantees. Another reason would be to lock in higher payouts."

Yeiter is referring to how guaranteed payouts are priced. When you purchase an annuity, your payouts are based on what's called a mortality table—or the probability of dying at each age.

As people are living longer, insurers are having to stretch guaranteed longevity protection over more time, resulting in potentially lower monthly payments. "Because we're living longer, you can take advantage of that mortality table and lock in stronger future payments by purchasing now, rather than rolling the dice on what your payouts could be 30 years from now," Yeiter suggests.

Why choose variable annuities with Thrivent?

Many of our clients choose to do business with us because of our values and commitment to helping you make the most of all you've been given. As a not-for-profit, member-owned financial services organization, Thrivent doesn't distribute profits to shareholders. Instead, we reinvest in our members and our communities.

As one of the strongest financial organizations available to you, with the AM Best Superior A++ rating² and named one of the "World's Most Ethical Companies" from 2012-2023,³ we take pride in serving our clients with financial strength.

"When we talk about guarantees with annuities or any product, those guarantees are only as strong as the company you purchase them from, and there are not many companies as financially strong as Thrivent," says Yeiter.

Ready to look further into your variable annuity options? Connect with a financial advisor near you.

If you would like a free buyer's guide for more detail, please call 800-847-4836.