I have an 83 year old prospect right now who is the perfect candidate for an annuity, more specifically a split annuity concept. The problem is she is unfamiliar with annuities, and would rather stay in her CD’s making 2%, because she is familiar with them and is afraid of change.
To add to her hesitancy about purchasing an annuity, she heard about a friend who had annuitized and selected the life only payment option. Of course, when this person died, his heirs received nothing. Even though I have explained to her that other payment options are available, where your beneficiaries do, in fact, receive the corpus of the account’s balance, she’s still scared.
I just found an old article on MSNBC talking about how our Fed Chairman, Ben Bernanke’s, largest assets are two annuities. He holds a pretty no-frills investment portfolio of U.S Treasuries, mutual funds, and annuities. I guess I’ll send my prospect the article and ask her why an investment that’s good enough for the Fed Chairman can’t be trusted.
Her particular case is a slam dunk. She has $400,000 she’s drawing 3.9% on from a Wachovia CD. However, it’s going to mature next month, and she’ll most likely only be able to get about 2% for another year. Her problem is that every dime she earns on her CD is taxable. And because of another source of income, she earns so much that her social security is actually taxed.
A split annuity would provide her with the same amount of income she’s getting now, and guarantee that for 10 years. In this strategy, you take about 1/3 of the CD balance and deposit into a single premium immediate annuity. This pays out guaranteed income over a set period of years, say 5 or 10 years. Then you take the other 2/3, and invest in a deferred annuity. Over the course of 10 years, this balance grows back to 100% of the original balance that was split. There are tremendous tax advantages to this strategy, such as deferring tax on the 2/3, as well as paying little to no tax on the single premium immediate annuity.
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