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Variable annuity subaccounts: What they are & how they work

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Variable annuities can help you secure your retirement income while still allowing your money to grow through subaccounts where you choose how your money is invested. Let's explore how variable annuity subaccounts work, and factors to consider when choosing ones right for you.

What are variable annuity subaccounts?

When you purchase a variable annuity, your money goes into subaccounts invested in the market. Subaccounts often consist of stocks, bonds and money market funds.

As the annuity owner, you choose your subaccounts and how much to invest in each. For example, you might select a mixture of stocks and bonds, allocating 60% of your funds to stocks and 40% to bonds. The amount and types of funds available depend on the annuity provider.

Any investment gains will grow tax-deferred and benefit from compound earnings. Taxes will only be due when you start to receive payouts from your variable annuity.

Keep in mind that once invested, your money can gain or lose value based on subaccount performance.

Variable annuity investment options

Based on your goals and risk tolerance, you can choose from a variety of investment options, with different potential returns and risks. These options give you more control over your assets and the freedom to change your investments as your needs change.

Investments in subaccounts generally fall into three major asset categories: equity investments, bonds and money market funds. Each asset class has pros and cons to consider as you weigh your risk tolerance and financial goals.

  • Equity investments (stocks): These offer the highest growth potential but also come with greater risk.
  • Bonds: Safer than stocks but offer lower growth potential.
  • Money market funds: Typically earn a small return while keeping risk at a low level.

Annuity providers typically have a selection process for the subaccounts they offer with variable annuities. Ask your provider about how their options are chosen.

Variable annuity subaccount fees

One of the caveats of variable annuities is that they can come with expenses and fees that may affect your principal. Because these fees vary by provider and contract, review your prospectus with your financial advisor to understand all associated costs and how they can impact your earnings.

  • Subaccount investment fees. Variable annuity subaccounts may include investment fees.
  • Administrative fees. Variable annuity contracts may charge maintenance fees as a flat rate or a percentage of your account's value.
  • Surrender charges. Variable annuity contracts require you to pay a fee if you cancel your annuity during the surrender charge period disclosed in the prospectus and contract.

How to choose variable annuity subaccounts

While you have several options at your disposal, selecting the right investments is personal. It depends on your individual goals, risk tolerance and circumstances.

Here are a few factors to consider as you select subaccounts that can keep you on track toward your primary goal—meeting the needs of you and your family.

Identify your investment goals

Your retirement goals can help you select variable annuity subaccounts. Every subaccount has an objective. Objectives can range from maximum growth to fixed income and everything in between.

Know your risk tolerance

Your risk tolerance and investment timeline should also factor into your subaccount selection. For example, if you're near retirement and have a low risk tolerance, you may want options that lean toward conservative growth and set income. In this situation, prioritizing can limit your risk exposure, giving you more confidence in your retirement plan.

Evaluate the asset's cost and performance

To choose a subaccount that can best help you reach your goals, understand the asset's cost and past performance. The prospectus outlines fees, risks and other contract details. For performance, consider researching particular assets and reviewing their rating. Independent research firms such as Morningstar, Bloomberg, MarketWatch and others can give you market data analysis of the asset's historical returns.

Aim for a balanced portfolio

Thoughtful asset allocation is key to a diversified portfolio, which is one of the best ways to minimize risk. Working with your financial advisor, you can target funds that complement each other and create an appropriate mix of stocks, bonds and other securities that balance your risk tolerance and goals.

Investing your way with confidence

The best way to choose a subaccount is to consider your retirement goals, time frame and risk tolerance. But it's also important to understand its fees, risks and past performance before you invest. A Thrivent financial advisor can help you choose the variable annuity subaccounts that align with your goals and secure your retirement income for you and your family's future.

While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.

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

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

Variable annuities are long-term investment vehicles designed for retirement. The value of the annuity is subject to market risk, including the potential loss of principal. Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits.

Any withdrawals made before age 59½ may be subject to a 10% IRS penalty. Surrenders, partial or full, may be subject to income taxes and/or surrender charges.

An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the U.S. government that protects the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.

Past performance is not necessarily indicative of future results.