Use a Split Annuity Strategy for More Income

As a retiree, you may have Social Security income and some pension income too. But you may want an additional but assured income to round out your financial planning for retirement. You have some investment money you can generate income with but you are leery of losing your principal because you may have to rely on that income for a long time.  What is an appropriate strategy for generating income but preserving your principal? You could use a certificate of deposit (CD). It is federally insured. The interest rate you will get depends on how long you tie up your money in the CD. A longer term CD typically produces a higher rate. CD’s are conservative securities representing the lower region of interest rate offerings. Nevertheless, at, say, 5% interest you can take $5,000 per year and preserve your $100,000 principal.  This interest income is fully taxed and you would be left $3,300 with under a 28% tax bracket. Let’s try a better strategy… A strategy that can give you more income–and will also tie your money up for while–uses a Split Annuity. Actually a Split Annuity is not an annuity policy. It is simply a combination of two annuity [...]

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