Mutual Funds vs. Variable Annuities
As you prepare for retirement, you want your money to accumulate as much as possible. If you're more comfortable with the stock market's volatility – or if you're not as close to retirement and can afford more risk in your portfolio – you may wish to consider either buying a variable annuity or investing in a mutual fund.
Mutual funds and variable annuities can each play an important role in a financial program. They are each designed to meet different needs and time horizons. Both offer potential growth and seek to provide solutions to help fund your retirement strategy. Here's an overview of the primary differences between the two:
| Feature | Mutual Funds1 | Variable Annuity2 | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Professional money management and pooled investment vehicles | Yes | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||
| Time horizon and goal appropriateness | Any short, intermediate, and long-term goals, depending on the mutual fund selected. | Long-term goals, including retirement. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-deferred accumulation3 | No, dividends and distributed capital gains are taxed in the year received. Yes, undistributed capital gains (share price appreciation) are tax-deferred. Fifteen funds had undistributed capital gains in 2010. |
Yes, tax-deferred until withdrawn. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax-free transfers3 | No, exchanges between mutual funds may result in capital gains. | Yes, tax-free transfers between subaccounts. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Taxation of redemptions/ withdrawals3 | Yes, taxation of dividends and capital gain/loss treatment. | Yes, earnings are taxed as ordinary income (earnings withdrawn first). Remainder is not taxed. | ||||||||||||||||||||||||||||||||||||||||||||||||
| 10% Tax penalty on withdrawals3 | No, not for a non-qualified account. | Yes, before age 59½, (certain exceptions may apply). However, up to 10% of the accumulated value may be withdrawn each year without penalty.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Guaranteed income for life3 | No, not available. | Yes, single life and joint life income available as optional benefits for an additional charge.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Withdrawal methods | Yes, dividends and/or capital gains. | Yes, fixed and variable available.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Death benefit | No | Basic death benefit available at no charge. Beneficiary receives greater of accumulated value or premiums paid (adjusted for partial surrenders). Optional death benefits available for additional fee. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed-interest options | No | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sales charge | Yes, you pay an up-front sales charge. Sales charges on Class A Shares of equity and Asset Allocation Funds:
Sales charges on Class A Shares of fixed-income funds:8
Sales charges on Class A Shares of Thrivent Government Bond Fund:8
|
Yes, but you only pay a charge if you surrender more than 10% of your contract per year within the first seven years. Surrender Charges:
Limitations may apply. |
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| Other fees/expenses
Fees and expenses are net of any contractual or temporary fee waivers that may apply. Temporary waivers and expense-offset provisions may be discontinued at any time. |
Advisory, administrative, and distribution and service fees. These vary from fund to fund. See the Thrivent Mutual Funds Prospectus for details. Fees/expenses range from 0.70% to 1.64%. | Net subaccount operating expenses range from 0.43% to 1.50%. Gross subaccount operating expenses range from 0.43% to 4.67%. $25 transfer charge (after 12 transfers/year). $30 annual administrative charge.9 0.25% commuted value charge.10 |
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| Stepped-up cost basis at death | Yes, all beneficiaries receive a stepped-up cost basis. | No, the existing cost basis carries over to the beneficiary. Gains are taxed as ordinary income as paid out, but a spouse may defer tax consequences by electing a spousal exchange. Spousal exchanges are available for contracts issued after 1/17/85. |
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| Avoids probate cost/proceedings | No, unless Transfer on Death (TOD) account registration. | Yes, if beneficiary named is other than estate. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings impact Social Security tax | Yes | No, unless earnings withdrawn are paid out in settlement options. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Learn more | More about mutual funds. | More about annuities. |
Variable annuities and mutual funds can help you prepare for retirement. Contact a Thrivent Financial representative to ask which option might be a good fit for you.
Neither Thrivent Financial for Lutherans nor any of its financial representatives give legal or tax advice. The brief discussion of taxes is neither complete nor necessarily up-to-date; the laws and regulations are complex and subject to change. The additional fees and charges associated with an annuity will have a negative impact on the performance of the variable annuity subaccounts. Please consult a tax advisor for more detailed information.
Annuity contract guarantees are based on the financial strength and claims-paying ability of Thrivent Financial for Lutherans.
These contracts have exclusions, limitations, reductions of benefits, and terms under which the contract may be continued in force or discontinued. For complete details of coverage, contact a Thrivent Financial representative.
Investing in a mutual fund or variable annuity contract 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 or mutual funds is included in each individual product prospectus (mutual fund prospectus; variable annuity prospectus), which investors should read and consider carefully before investing.
Annuity contract guarantees are based on the financial strength of Thrivent Financial for Lutherans.
1 Data shown is accurate as of prospectus dated 02/28/2011.
2 Data shown is accurate as of prospectus dated 4/30/2011. Product-specific data shown is for contract forms W-BC-FPVA (05) Series, W-BC-FPVA ID (05), WR-LW-GLWB (07).
3 Assumes a non-qualified scenario. If either product is used in a qualified scenario, qualified plan taxation rules take precedence. For example, a non-qualified annuity is not subject to required minimum distribution (RMD) rules, whereas if the annuity is inside an IRA, it is subject to RMD. In considering any annuity for a qualified retirement investment, please note that an annuity does not provide any additional tax benefit. However, annuities provide other features and benefits that may be important to you.
4 Before you make a withdrawal from or surrender your annuity contract, you should consult your tax advisor.
5 If you do not choose a guarantee period, there is a risk that, if you die prematurely, no death proceeds will be paid to your beneficiaries.
6A variable settlement option may be chosen. If a lifetime settlement option is chosen (invested like a variable annuity), the yearly returns have an effect on the settlement option payout.
7 1% contingent deferred sales charge for shares redeemed within one year.
8 Does not apply to Thrivent Limited Maturity Bond Fund, Thrivent Money Market Fund and Thrivent Government Bond Fund.
9 Waived if (a) the accumulated value of the contract on the contract anniversary is at least $15,000, (b) the sum of premiums paid on, less all surrenders made from, the contract is at least $15,000, or (c) the sum of premiums paid less all surrenders made during the contract year just ended is at least $2,400.
10 If a payee under a settlement option elects to receive a lump sum instead of continuing payments, Thrivent Financial will pay the commuted value of the future payments for the remaining guaranteed period. The commuted value is determined by using an interest rate that is 0.25% more than the interest rate used to determine the annuity payments.
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