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?
Phil Cannella: “The only real downside to a split annuity is that it is a fixed investment, meaning it works exactly as designed and once invested there isn’t a whole lot of flexibility.
But there are optional features in a split annuity that can provide some flexibility, like the accelerated payment feature, which allows the client to take up to 6 monthly payments in advance. There are plenty of features like that which can be added to each annuity product to make the investment more flexible. So be sure to review all of the features these products offer so you can better suit your client’s needs.”
Q: Fair Enough, So What Kind of Client is a Split Annuity Ideal for?
Phil Cannella: “I find that this is an ideal investment strategy for those in or near retirement.
Retirees find this strategy appealing because often they are seeking a steady income to replace the paycheck they were once depended on. A split annuity cannot only provide them with the monthly income they desire, but also preserve their principal the entire time. That is why the split annuity has been inducted into my collection of strategies that can create a Crash Proof Retirement.”
Q: What Makes a Split Annuity “Crash Proof”?
Phil Cannella: “Split annuities carry the hallmark of Crash Proof Vehicles, meaning they never subject the investor to market losses. All clients can find comfort in knowing that even in the event of a market crash, their investment will not skip a beat thanks to the strength of the insurance industry.”
Producers eSource extends a warm thank you to Phil Cannella for sharing his knowledge and experience. We look forward to further interviews with Phil, covering hot topics and getting insight on what’s helping clients crash proof their retirement.
Latest posts by Jonathan Davitt (see all)
- Sagicor Infographic Giveaway - November 9, 2016
- The Million Dollar Round Table Announces 2017 Executive Committee Leadership as it Enters 90th Year - September 2, 2016
- An Interview with Top Advisor – Clarke Langrall, Jr. - June 16, 2016