Split Funded Annuities divide your investments into two types. A certain portion of your principal is used to fund immediate monthly payments. Thereafter, the remaining portion is invested in a deferred annuity. Both of them help you to hold or receive dependable income, which you simultaneously save for future needs.
Functions of Split Funded Annuities
In Split Fund Annuities, your immediate annuity begins paying you right away. The deferred annuity allows your funds to accumulate. A deferred annuity is used to hold the bulk of your retirement savings. Therefore, your payout is better down the line. An immediate annuity is purchased with a portion of your savings from the deferred annuity. Most of your savings stay intact while you receive an income for a set number of years or for your entire life.
Significance of Split Funded Annuities :
The significance of Split Funded Annuities is that while your immediate annuity is making payments to you, the deferred annuity continues to grow. In other words, the deferred annuity multiplies your savings, while the immediate annuity provides a regular income to you. The benefit of Split Funded Annuities is that you are guaranteed an income at regular intervals and your savings never run out. Moreover, only a part of your deferred annuity is converted, you still have access to a huge sum of money. It can be of great help in the event of an emergency.
There are disadvantages as well to consider Split Funded Annuities because you need large savings for the plan to work. If your savings are too small, the concept of a split annuity is also somewhat complex. All you need to do is how to time the conversion of your deferred annuity, or what percentages will work. Then, you may end up unintentionally depleting your deferred annuity account over time. You have to take into consideration what your Split Funded Annuities will produce.
Strategies and Choices
The strategies and choices to be made when investing and saving for retirement in Split Funded Annuities should be done with great thinking. It involves your critical reasoning abilities for a free flow of retirement savings. One basic choice to be made is how much to invest when purchasing an immediate annuity and a deferred annuity. This gives the funds time to accumulate and leads to larger payments. If you are about to retire and want to purchase Split Funded Annuities, this simple approach would help you to benefit from retirement savings.
When you are ready to begin receiving payments from your deferred annuity, you could do another split and put some of the money into an immediate annuity and defer the rest. Take 500,000 dollars in savings and split it in half. Invest 250,000 dollars in an immediate annuity that pays for 10 years. The rest in a deferred annuity with a potential return on investment of 5 to 7 percent. In 10 years, the deferred annuity grows to 500,000 dollars. At that time, you do another split. An income rider can help achieve guaranteed income for life.
Bottom Line :
The bottom line is that while you are receiving payments from the immediate annuity, the rest of your money in the deferred annuity is growing, multiplying your savings while you are being paid. The goal is that by the time your payout begins on the deferred annuity, it will have accumulated enough funds. The balance should be equal to your starting principal. This Split Funded Annuity works only when you have enough money to make the formula work to your advantage.
