How can a sixty-five year old person with $500,000 in an IRA earn guaranteed income, save for the future and protect themselves against inflation all at the same time?
The simple answer is you can, you can “split” the IRA account, use a portion for income (as example) for 10 years at which time it would end, then defer the second $250,000 for 10 years and convert it to income at that time.
This concept is called the Split Annuity and is perfect for a person who wants income now but wants to build a larger income in the future as a hedge against inflation.
With the Split Annuity in this case I used 50% of the $500,000 and bought an immediate annuity with a company that provides the best guaranteed income for 10 years. The immediate annuity provides an estimated $26,000 a year of guaranteed income for 10 years.
With the other half of the IRA I made a deposit into a Fixed Index Annuity with an income rider that provides a guaranteed 8% bonus on the $250,000 and this amount grows at 6.50% for each year for 10 years. (when used as income)
When the first half of the split annuity ends in 10 years, you start the income from the second annuity. This income stream can pay for any time period, even lifetime and a spouse can be included. A reasonable estimate from the deferred income could be in excess of $30,000 for lifetime income.
Plus, any unused funds on deposit in either annuity, in the event of a premature death, are passed to the named beneficiary. Plus, a named benificiary always receives the funds without any need for probate.
Here are the advantages of using the split annuity concept.
- Income now and income deferred.
- Current and future income is fully guaranteed.
- Required minimum withdrawals are included in the annuity income
The Split Annuity is just another example of how creative and flexible an annuity can be in helping you meet your income goals!