We interviewed Phil Cannella, Retirement Phase Expert and Industry Leader, to tap into his 37 years of experience working with those in and near retirement to explain how a split annuity fits in an investment strategy.
Q: First off, What is a Split Annuity?
Phil Cannella: “A split annuity is a great investment strategy that involves the use of a SPIA (Single Premium Immediate Annuity) and a deferred fixed annuity. These two investment products work together simultaneously to allow the client to receive income from a portion of their nest egg immediately, while the remaining portion gains interest over time.”
Q: What makes a Split Annuity a “Great” Investment Strategy?
Phil Cannella: “This is a great investment strategy because it allows two very safe investment products to work together in perfect harmony. Using either a SPIA or a deferred fixed annuity alone has its benefits, but strategically using them together optimizes the value of each product. By implementing a split annuity, you can provide a client with years of guaranteed income, while never reducing their principal value.”
Q: So, You’re Saying a Split Annuity will Provide Years of Income but the Client Never Loses Money?
Phil Cannella:“Yes, Exactly! A portion of the client’s investment is put into a SPIA, which pays a guaranteed monthly income for a set amount of time. The rest of the investment is placed into a deferred fixed annuity, which is a long term product that gains interest for the length of the investment.
The fixed deferred annuity is set to payout exactly when the SPIA stops providing monthly income. At this point, the client will receive a lump sum payment, which is designed to grow to be the same amount that the client originally invested into the split annuity.
So just like that, the client has received years of income without ever actually losing any of their principal investment.”
Q: Okay, but Exactly How Long Do Client’s receive this income? And How much Do They Receive?
Phil Cannella: “Well that all depends on the client’s goals and how much they want to invest.
The more a client wants to invest, the higher their monthly payments will be. Usually clients prefer to invest in a split annuity for five years, but they can be designed to payout for 10 or even 15 years.“
Q: Okay, So Far This Sounds like a Pretty Cool Investment, So what’s the Catch?
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