This blog is intended to de-complicate the Split Annuity concept.

A Split Annuity is not an annuity policy; rather it is a combination of two annuity products. A single premium tax deferred annuity and a single premium immediate annuity (SPIA).

With the SPIA you are attempting to produce and immediate income stream guaranteed for a certain period of time. With the deferred annuity you are attempting to gain as much interest as possible in such a way as to restore your original principle at the time you purchased both annuities.

This plan hinges on your age and the income period. Typically this plan will work if you are under the age of 85. 

Example:

$100,000 to start

Immediate annuity                      Deferred Annuity

$38,430 at 6.2%                        $61,570 at 6.25%

                                                will grow to.

                      Monthly Income               

$485.37                                     Yr. 1 $65,418

                                                  Yr. 2 $69,507  

                              Annual Income                         Yr. 3 $73,851

$5,824.48                                  Yr. 4 $78,466

                                                 Yr. 5 $83,371

For 8 years for                            Yr. 6 $88,581

  which 82%                                Yr. 7 $94,118

   is not taxed                                Yr. 8 $100,000

Total Income before Taxes                   Original Principle!

                             $46,595

What you have done is provide yourself with 8 years of income and it did not cost you a dime. You have completely indemnified yourself.

The next time you meet with your trusted financial advisor, ask them about this concept.