What is a Split-Annuity?

Shawn Plummer

CEO, The Annuity Expert

Understanding Split-Annuity

A split-annuity is a financial strategy combining two types of annuities: a fixed immediate annuity and a deferred annuity. This strategy aims to provide both immediate income and future growth potential.

Split Annuities

How Does a Split-Annuity Work?

  1. Immediate Income: A portion of your investment is put into a fixed immediate annuity, which starts paying regular income right away.
  2. Future Growth: The rest is invested in a deferred annuity, which grows tax-deferred and can be converted into an income stream later.

Example of a Split-Annuity

  • Initial Investment: $100,000
  • Immediate Annuity Investment: $40,000
  • Deferred Annuity Investment: $60,000
  • Immediate Annuity Payouts: $200 per month for 10 years
  • Deferred Annuity Growth: Accumulates interest over 10 years
Split Annuity

Benefits of a Split-Annuity

  • Regular Income: Provides steady income for a specified period.
  • Tax Advantages: Deferred annuity grows tax-deferred.
  • Flexibility: Adjust the split based on income needs and growth goals.

Considerations Before Investing in a Split-Annuity

  • Financial Goals: Align with retirement income needs and long-term objectives.
  • Risk Tolerance: Consider the risk associated with the deferred annuity.
  • Liquidity Needs: Immediate annuities typically have limited liquidity.

Split-Annuity Features

FeatureImmediate Annuity PartDeferred Annuity Part
PurposeImmediate IncomeFuture Growth
Investment TimeframeShort-termLong-term
PayoutsRegular and ImmediateDeferred and Variable
Tax ImplicationsTaxed as IncomeTax-Deferred Growth
LiquidityLimitedVaries
Split-Annuity Strategy

Conclusion

A split-annuity can be a valuable tool for balancing immediate income needs with long-term growth objectives in retirement planning. By understanding its components and how they work together, you can make informed decisions that align with your financial goals. Contact us today for a free quote.

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Frequently Asked Questions

What is a split annuity?

To implement a split-annuity strategy, you would buy two types of annuity contracts: immediate and deferred. The immediate annuity would give you an income stream in the early years of your retirement, while the deferred annuity would offer a potential income stream in the future.

What is the 50% rule for annuity?

In retirement plans, the payment made to the surviving spouse must be at least 50% but not more than 100% of the annuity paid during the participant’s lifetime.

What is an annuity, and why is it wrong?

Annuities are contracts that span a long time, with charges for ending them early. For income annuities, you give up control over your investment. Certain kinds of annuities may offer minimal or no interest. Guaranteed income from some annuities might not be sufficient to keep up with inflation.

Are multi-year guaranteed annuities a good investment?

Multi-year guaranteed annuities can be used as an alternative to CDs or invested alongside them. In addition, they provide a possibly safer investment option for the future and offer favorable tax treatment when the money is withdrawn.

What is the 4 percent rule for annuity?

Bingen’s Rule suggests that if a retiree has a portfolio divided equally between stocks and bonds, they can avoid running out of funds by withdrawing 4 percent of the account balance in the first year of retirement and adjusting that amount for inflation each year.

Do annuities survive death?

If the annuity contract has no death-benefit provision, the annuity payments will stop upon the annuity owner’s death. However, if there is a death-benefit provision, the annuity owner can choose a beneficiary who will receive either the remaining balance or a minimum guaranteed amount, whichever is greater.

What is the five-year rule for annuity payout?

The Five-Year Rule requires that if a non-spousal beneficiary inherits a non-qualified annuity, they must withdraw the entire balance within five years of the owner’s death. However, the Rule permits the beneficiary to choose when to receive the death benefit proceeds.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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