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Navigating the accumulation period of an annuity

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An annuity may be an attractive option for anyone who wants to receive a stable, lasting income in their retirement years. It's a contract with an insurance company providing an opportunity to accumulate assets that can be turned into a source of guaranteed income in retirement. You fund an annuity with a lump sum or a series of payments.

When purchasing annuities, it's important to understand their different stages and how they play a role in your savings strategy. The accumulation phase is a critical part of an annuity and can vary based on the type of annuity you purchase and the contract terms. Here's what to know.

What is the accumulation period of an annuity?

The first stage of an annuity is the accumulation period, a time when you save and potentially grow the value of your annuity to prepare your retirement needs.

Annuities with accumulation periods offers these two key benefits:

1. Your contributions have time for potential growth

The accumulation period of a deferred annuity provides a potential opportunity for increasing your value. Over the years, you may be able to continue contributing to your annuity, increasing your eventual retirement income.

Time also can help compound the growth of your contributions through any interest or earnings on your annuity. In addition, with a variable annuity, there's the potential to see growth due to market gains. However, that's not guaranteed and there is the potential to lose money in a variable annuity.

2. You have certain tax advantages on your earnings

Choosing a deferred annuity, whether fixed or variable, gives you the potential for tax-deferred growth. That means any earnings can accumulate tax-free until withdrawal. The benefit of tax deferral means potential earnings can grow faster because they aren't taxed yearly—your money compounds because taxes are not reducing it. Over time, the funds that would have otherwise gone to taxes may accumulate into a larger sum of money at the end of the accumulation period.

However, those earnings are taxed like regular income when you begin withdrawing.

What is the the distribution period of an annuity?

The second phase, called the distribution period, begins when you're ready to start receiving money. One way to do that is to simply take withdrawals from the annuity. The second option is to elect a settlement option (also called annuitization), where the insurance company guarantees you payouts for life or a specified number of years.

The key difference between accumulation and distribution is that the accumulation period is about building your annuity's value while the distribution period is about using your annuity’s value for your retirement years.

How do different types of annuities work with accumulation?

Annuities are mainly categorized in two ways based on the payout timeline (immediate vs. deferred) and the type of potential growth (fixed vs. variable).

  • Immediate annuities have no accumulation period. Payments must start within the first year. You can have a guaranteed monthly, quarterly or annual payments right away.
  • Deferred annuities have an accumulation period. This can give your annuity a long period of time to potentially grow, with the advantages of compound earnings and tax deferral until withdrawal.
  • Fixed annuities pay a fixed guaranteed minimum interest rate for the duration of your annuity. A fixed indexed annuity is a variation that can offer the potential for growth during accumulation, with returns tied to market indexes, up to a capped percentage, and protection from loss. Another variation, a multi-year guarantee annuity (MYGA), offers a guaranteed fixed interest rate over a time period you select at the time of purchase.
  • Variable annuities may help you accumulate assets over the long term. During the accumulation period, you can choose investments based on your risk profile. Any growth from the earnings is tax-deferred. However, the annuity's value may fluctuate depending on the market—the accumulated amount may go up or down depending on your investment choices, and you can lose money.
  • Deferred income annuities can provide an income to start at a set date in the future to help reduce longevity risk. You may purchase a deferred income annuity with a lump sum or series of payments, where the insurance company then guarantees annuity payments at a point in the future. Then, on the date you select at the time of purchase, when you need the income, in as little as one year or many in the future, guaranteed payments begin to help supplement your other retirement savings.

Get guidance to help achieve your retirement goals

Annuities with accumulation phases have features that are worth considering. If you're looking to diversify your portfolio and add guaranteed income options in retirement, an annuity can help protect you against running out of savings.

If you're thinking about purchasing an annuity, consider speaking with a Thrivent financial advisor. They can review your current savings strategy and retirement goals and help you determine if an annuity fits your needs.

This webpage provides general annuities information. It does not contain information specific to a Thrivent financial product. If you are looking for information specific to a Thrivent financial product or your existing annuity contract, please log in and refer to your contract or prospectus document—or visit our annuities product webpage.

Annuities are intended to be long-term, particularly for retirement. Product availability and features may vary by state.

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.

Guarantees are based on the financial strength and claims paying ability of Thrivent.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits. Thrivent and its financial advisors do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

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