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Split-Annuity Strategy
A split-annuity strategy involves purchasing two types of
annuity contracts: immediate and deferred. The immediate annuity would
provide a current income stream during the early years of retirement, and
the deferred annuity would have the potential to provide a future income
stream.
An immediate fixed annuity earns a guaranteed rate of return
and immediately pays a regular income for the duration specified in the
contract. Meanwhile, the funds in a deferred fixed annuity accumulate tax
deferred until they are needed. Once the immediate fixed annuity has been
depleted, the deferred fixed annuity can be used to generate a regular
income stream. Of course, any earnings withdrawn from the deferred annuity
would be taxed as ordinary income.
By combining an immediate annuity with a deferred annuity,
you can receive both current retirement income and tax-deferred growth
potential. Of course, the guarantees of fixed annuity contracts are
contingent on the claims-paying ability of the issuing insurance company.
An annuity is a financial vehicle used for retirement
purposes. It is a contract with an insurance company that can be funded
either with a lump sum or through regular payments over time. In exchange,
the insurance company will pay an income that can last for a specific period
or for life, depending on the terms of the contract. There are fees and
expenses associated with annuities, as well as surrender charges that are
assessed during the early years of the contract if the contract owner
surrenders the annuity. In addition, if the contract is surrendered prior to
age 59½, you may be subject to a 10% federal income tax penalty.
In retirement, most people rely on a combination of Social
Security, retirement plans, and personal savings for income. A split-annuity
strategy can help supplement these income sources and cover any shortfalls.
This is one way to add some stability to your financial future and to help
ensure that you don’t outlive your assets.
© 2007 Emerald Publications
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