Using
a Split Annuity Strategy
More
than half of Americans aged 50 and older are worried about having enough money
for retirement.¹
One way
investors can help ensure that they have enough money for a long retirement is
to consider annuities.² An annuity is a long-term financial vehicle that can be
used to provide income in retirement. During the accumulation phase, the
contract can be funded with a lump sum or a series of payments, and any earnings
accumulate tax deferred. A fixed annuity specifies the interest rate that will
be paid for a certain number of years; any guarantees are contingent on the
claims-paying ability of the issuing insurance company.³
A
split annuity strategy can be used by people to generate an immediate, steady
income stream while potentially stretching some retirement savings for the
future. Basically, this strategy involves dividing the initial premium into an
immediate fixed annuity contract and a deferred fixed annuity contract.
How
It Works
With an immediate annuity, an individual contributes a
lump sum and then receives income for a specified period of time. The income is
paid until the annuity has paid out all of its value.
With a
deferred annuity, an individual makes contributions during the accumulation
phase. Once it reaches the distribution phase, the contract holder chooses how
the funds are paid.
During
the early years of retirement, the immediate fixed annuity can provide a steady
income stream. Once that income source is depleted, the funds from the deferred
fixed annuity can potentially be used as a replacement source of income.
Using
immediate and deferred fixed annuities together can be an effective retirement
strategy that provides the best of both worlds: a stable current income stream
and a future income stream. Call today to discuss your retirement strategy.
1) The
Gallup Organization, May 2004
2) Most annuities have surrender charges that are assessed during the early
years of the contract if the contract owner surrenders the annuity. In addition,
if you surrender the contract before age 59½, you may be subject to a 10
percent federal income tax penalty.
3) Annuities contain mortality and expense charges, account fees, investment
management fees, and administrative fees. The guarantees of fixed annuity
contracts are contingent on the claims-paying ability of the issuing insurance
company.
