As you approach or enter retirement, you may need to strike a balance between the need for reliable income with continued growth. For some individuals, a split annuity strategy offers an appealing way to meet both goals. A split annuity combines two types of annuities — an immediate annuity and a deferred annuity — using one lump sum. Together, they can provide short-term stability and long-term savings.
Learn how split annuities work, when they may be a good fit, and how you can use Gainbridge fixed annuities to achieve a similar outcome with potentially greater flexibility and control.
What is a split annuity?
A split annuity, sometimes referred to as a combination annuity, blends the key features of two different annuities purchased at the same time. The strategy involves using a lump sum to buy an immediate annuity, which can provide guaranteed income right away, and a deferred annuity, which continues to grow tax-deferred for future income needs. The aim is to split funds to balance growth and income, generating steady payments and continued earnings potential without full exposure to market volatility or near-term tax consequences.
What is a split-funded annuity?
A split-funded annuity is not the same as a split annuity. “Split funding” refers to the method of dividing a single investment among different annuity contracts or products. It’s a funding approach, not automatically a retirement income strategy, and doesn’t necessarily combine immediate and deferred annuities in the same way a split annuity does.
How a split annuity works
A split annuity involves dividing a lump sum between two annuity contracts purchased at the same time: an immediate annuity and a deferred annuity. The immediate annuity begins making payments right away — usually for five to 10 years. These payments provide predictable income to cover near-term expenses.
Meanwhile, the deferred annuity remains untouched, accumulating interest on a tax-deferred basis. This means that you won’t pay taxes on the earnings until you begin taking withdrawals, letting your money grow potentially faster than it would in a taxable account. When the immediate annuity’s income stream ends, the deferred annuity has ideally grown enough to provide future income without reducing your original principal too soon. For instance, if you contribute $75,000 in an immediate annuity and $100,000 in a deferred annuity, you might aim for the latter to be worth $175,000 by the time the first one ends, effectively restoring your original principal base.
Gainbridge fixed annuities can produce a similar outcome without the need to juggle contracts, worry about timing, or give up access to your retirement savings.
Benefits of a split annuity
A split annuity can be an attractive option for retirees or conservative investors prioritizing steady income, capital preservation, and moderate growth without market risk. Here’s an overview of their key benefits.
Immediate income
The immediate annuity portion starts paying out right away, offering a predictable income stream for near-term retirement needs. It can provide peace of mind knowing you have reliable cash flow to cover living expenses in the first few years of retirement before drawing from other savings or income sources.
Tax-deferred growth
The deferred annuity continues to accumulate earnings tax-deferred while the immediate annuity provides income. This helps your contribution grow efficiently and may rebuild the principal used to fund your initial income stream.
Structured budgeting
By combining two annuities with distinct time horizons, split annuities can create a clear structure for managing income and growth. This approach can simplify budgeting and support cash flow, while reducing concerns about market conditions.
If you’re seeking similar benefits with potentially more flexibility, SteadyPace™ offers guaranteed growth, tax-deferred earnings, and dependable income, all within a single, easy-to-manage contract.
Downsides and risks
Split annuities can serve specific retirement goals, but they also come with tradeoffs. While not inherently risky, their structure may be less straightforward than other income options. Here are the potential drawbacks to consider:
- Limited liquidity: Once you’re committed to both contracts, your access to the funds typically becomes restricted. Early withdrawals can trigger penalties, surrender charges, and potential tax consequences, making it difficult to use the money for unexpected needs.
- Added complexity: Managing two annuity contracts, each with its own terms, timelines, and payout options, can complicate your retirement strategy and make tracking performance or planning withdrawals more challenging.
Alternatives to split annuities
Split annuities aren’t the only way to balance income and growth in retirement. Depending on your needs, you might also consider:
- Fixed annuities that can offer steady, predictable income through structured withdrawals.
- Fixed index annuities that combine the potential for higher interest growth linked to a market index while protecting your principal.
- Deferred annuities with income riders that can give you flexible access to guaranteed income when you’re ready to start withdrawals.
These approaches can deliver many of the same benefits as a split annuity with less complexity. Gainbridge’s digital-first annuities can be tailored to align with your goals and with straightforward, transparent terms.
Build a straightforward retirement strategy with Gainbridge
Whether you’re looking for steady payouts today or sustainable growth for the future, Gainbridge has a range of annuities designed to help you turn savings into dependable income. With no hidden fees or commissions and an innovative platform, annuities with Gainbridge can be easy to understand.
Explore Gainbridge today and learn how annuities can fit into your retirement plan.
This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.
.jpeg)
