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Help Prep Your Savings for a Lasting Retirement
March 28, 2018
How can you spend your retirement years without spending all your money? The answer: Set up a retirement income distribution strategy that helps ensure your savings last as long as you do.
As a key part of that strategy, you may want to consider annuities.
You've undoubtedly heard and read about them, especially if you're retiring in the next five to 10 years.
It's also likely that what you've heard and read hasn't been all good. It's true – not all annuities are a good fit for all situations.
But stigmas aside, here's why you may actually want to consider including annuities in your retirement savings plan: They can convert your retirement savings into a stream of income to help ensure that your savings won't run out.
It all boils down to understanding your needs and goals and the options that could help get you where you want to go. That's why it's important to talk with a financial representative who understands you and can help you find the best solution.
If and when an annuity is the right fit, it's about choosing the right one. A well-chosen annuity may help when it comes to outliving your savings.
To see how, let's start by answering this central question:
What is an annuity?
Very simply, an annuity is defined as a long-term insurance product used for retirement savings. You pay the premiums, and then receive payouts at regular intervals – either monthly, quarterly or annually when you’re ready to start receiving retirement income.1 The timing, amount and duration of your payouts is determined by several factors. They include, but are not limited to:
- The premium amount you put into the annuity and its value when you begin receiving payouts.
- The length of the payout period you chose.
- Joint or single life income payouts.
- Guaranteed time frames.
- The type of funds used to buy the annuity.
Types of annuities & considerations
Annuities can be broken down into two categories: immediate and deferred. The main consideration when choosing between these depends on when you want payouts to begin.
Here's a general breakdown of the difference between immediate and deferred annuities.
Immediate vs deferred
|Purchase method:||Lump-sump only.||Lump-sum, regular periodic payments or both.|
|Payout start:||Immediately (or within 13 months).||Future date of your choosing.2|
|Payout options:||Monthly, quarterly or annually.||Monthly, quarterly or annually.|
In contrast, deferred annuities do have an accumulation phase, and it's during this accumulation phase that the fixed annuity and variable annuity options explained below come into play. Basically, these options designate whether or not your annuity is linked to the performance of investment subaccounts.
At a high level, here are the main ways fixed and variable annuities differ from one another during the accumulation phase.
Fixed vs variable
|How it works:||Earn interest at an annual fixed rate that is subject to a guaranteed minimum interest rate. Your earnings are not affected by short-term market fluctuations.||Increase or decrease account value based on the performance of subaccounts like stocks, bonds and other vehicles you choose to invest in.|
|Accumulated value:||Your account value will not reflect the ups and downs of the market. If the market takes a dip, your account value will not go down. If the market skyrockets, your account value will only go up at the fixed rate specified in your contract.||Your account value grows if the subaccounts you've invested in perform strongly. If the market goes down and your subaccounts perform poorly, your account value can take a hit – and may even result in the loss of principal.|
These are the basic structures that make up annuities – you have many options beyond what's shown here. That's part of their appeal: Options allow you to create a solution specific to your needs.
And while all those choices can make annuities seem confusing, they don't have to mean obsoleting them from your retirement strategy. Instead, it simply means you'll need sound guidance to determine the best route forward.
Want to explore annuities further? Contact your Thrivent Financial representative – they'd be happy to walk you through the benefits and considerations of each option so you can choose the best solution for your situation.
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1 Occurs once the annuity annuitizes or an income rider is activated.
2 Up to a maximum maturity age.
Surrenders or partial withdrawals/surrenders from a variable annuity or fixed annuity may be subject to income taxes and/or surrender charges. Withdrawals made prior to the age of 59 ½ may be subject to a 10% federal tax penalty.
Guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.
Investing in a variable annuity involves risk, including the possible loss of principal. More complete information on the investment objectives, risks, charges and expenses of the variable annuity contract and underlying investment options is included in the prospectuses, which investors should read and consider carefully before investing. Prospectuses are available from a Thrivent Financial representative or at Thrivent.com.