Consider a Split Annuity Decision

To supplement their income, two-thirds of workers plan to work for pay after they retire. Currently, however, only 26 percent of retirees report having worked for pay during retirement.¹

There are steps you can take to help ensure that you will have enough income in your retirement years, so a decision to work will be based on enjoyment rather than need. 

A split annuity strategy is one way to help provide a steady stream of retirement income. It involves purchasing an immediate fixed annuity to provide current income and a deferred fixed annuity to provide income at a future date.

An annuity is a contract between an individual and an insurance company. The insurance company promises to make payments in the future in return for payments today. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company.

Income Today and Tomorrow
In a split annuity, an initial sum is "split" between an immediate fixed annuity and a deferred annuity. The contract owner makes a lump-sum contribution to the immediate fixed annuity, which will pay a fixed amount of income starting immediately. The income payments will continue for the period specified in the contract.

Meanwhile, the assets allocated to the deferred annuity accumulate tax deferred. Withdrawals may be delayed until they are needed.

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 the contract is surrendered before age 59½, it may be subject to a 10 percent federal income tax penalty. Withdrawals of earnings are taxed as ordinary income.     

The primary benefit of a split annuity strategy is that it can provide a mix of current income and tax-deferred growth potential. The immediate fixed annuity provides regular income during the early years of retirement, and the funds from the deferred annuity may be used as a replacement source of income after the immediate fixed annuity is depleted.

Planning ahead may help ensure that you will not outlive your retirement savings. A split annuity strategy is one option to consider. 

1) 2005 Retirement Confidence Survey, Employee Benefit Research Institute

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