Splitting Annuities

There are times when you find that two different types of annuities will work to meet your goals.  The difference in benefits might be slight so it can be hard to decide which one to use, whether you are simply protecting and accumulating money or trying to secure retirement income.  Here’s an idea for anyone who has a hard time deciding which route to take.  If you are torn between two options with similar benefits then the answer is to split the difference.

People tell me all the time that my ideas are something they’ve never heard before.  There’s a ton of information out there and I take pride in the fact that I’m different from everyone else.  Given that I’m able to make a living doing it means that these different ideas actually work and you’d be remiss to not take a look.  But you’re all here because something about it is appealing.

Let’s talk about the simple goal of protecting assets and growing them first.  Over a month ago I recorded a podcast titled “Index Annuities are Better Than…” in order to explain how increases in fixed annuity rates led to more growth potential with index annuities.  When people realize that annuities are better than both bonds and CDs, many have a hard time deciding between the two.

It’s not an all or nothing decision.  You can either take the guaranteed growth rate or shoot for more potential with an index annuity.  I show everyone both because it’s not my job to push you in one direction or another.  Every index annuity has a fixed account as well so lots of people put at least a portion of the index allocation in the fixed rate option.  You can do the split within a single contract or you can split it between a fixed and indexed annuity.  I’ve had several people do this exact thing and have locked in quality guarantees along with upside growth potential.  

One couple did a 50/50 split between a five year fixed and a ten year indexed annuity.  Assuming an arbitrary 4% on the fixed annuity yield, their baseline on the entire annuity allocation is 2%.  It’s far better than a money market account and there’s still more upside.  Another man recently did the same thing with a third of the money in a separate fixed annuity.  The added benefit is that fixed annuities are best in the range of 3-5 years while indexed annuities look better in the range of 7-10 years.  If you follow the same strategy you end up with some laddering as well.

The same thing goes if you are looking to secure retirement income.  I’ve said for years that it’s easy to determine the highest level of guaranteed income.  In any situation it takes me no more than a few minutes to find it.  That’s what everyone else is selling and I determined long ago that it’s not always a great deal.  All of my alternative strategies grew from this realization and a lot of people appreciate a different option.

Whether guaranteed income is a good deal or not, some like the predictable nature of direct deposit each month.  It’s simple, easy and worry-free.  But there may be more money to be had elsewhere, with the same level of safety and protection.  A few weeks ago I recorded another podcast titled “Guaranteed Income:  Yes or No?” to show the difference between the two strategies.

When everyone arrives at Annuity Straight Talk they find something that no one talks about.  If anyone else is pitching it I can assure you it started here.  I called it the Flex Strategy because of the control it gives you along with allowing you to keep all options on the table.  It uses the annuities from above that simply protect and grow assets but gives you discretion over how and when you take money out.  It’s not guaranteed income but it is even better in a lot of cases.

The Flex Strategy appeals to people who want to maximize output and maintain control of assets.  Guaranteed income contracts appeal to those who don’t want to think about it or make decisions on an annual basis.  Many people get stuck in the middle and can’t decide between the two.  If you’re one of these people then consider splitting it up.  

Oftentimes retirement income goes beyond necessary spending.  Anything above that which you need is discretionary.  Take guaranteed income for what you need and use the Flex Strategy for the discretionary portion of retirement assets.  If you want extra money for a vacation every year then it’s impossible that you’d spend the same amount every year.  Why would you want a fixed payment for a variable expense?  I”ve known dozens of people who lock in guaranteed income for baseline expenses and use a deferred annuity for additional protection and discretionary access to the money.  Take it or don’t take it as you wish.

Over the years I’ve seen plenty of people figure this out on their own.  It’s an idea that I can’t really take credit for.  It’s proof that I learn as much from you as you do from me.  Be grateful for those who came before you.  They helped sharpen my tools and you can do the same for those who come later.  It’s all about sharing information and ideas that benefit everyone.  If you have a thought or suggestion please let me know.  It may help someone who needs it just as much as you.

Podcast about Splitting Annuities

What You’ll Learn From This Episode:

[5:00] Splitting up annuities and doing half indexed and fixed

[10:26] Rising fed-rates do not mean higher annuity payouts.

[10:53] The benefits of splitting annuities: half fixed and half indexed.

[12:07] Splitting annuities is a good way to set up the whole amount.

[15:39] You can split annuities, you can split strategies, you can split growth opportunities.

Quotable Quotes:

[9:07] “In this day and age, not everybody gets every penny in the market. Even though they carry the risk, nobody hits it dead on. “

[11:37] “You can put your money into an annuity and not touch it.”

[15:28] “Most people want it for the safety, the protection, the consistent cash flow , the protected value, the guaranteed growth, no loss upside, and any of those things.”


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Last Updated on February 5, 2024 by Bryan Anderson