How to Double Your Retirement Income With an Annuity

At retirement age, most people know that their pension and savings are all they have to live off for the rest of their lives so they need to make it stretch as far as possible. Taking risks on investments is simply not an option. What many people don't realize though is that inflation can so quickly creep up on you and reduce your earnings. In order to ensure a comfortable retirement, it's essential that as a pensioner you have ways of growing your income.

Are There Really Safe Ways of Investing and Growing a Retirement Income?
There are many savings policies that offer secure investments. However, the downside is usually that you don't get great interest rates and often the income derived from these investments doesn't out-perform inflation. The result is reduced actual income and purchasing power over time. Smart financial advisors have found out how to use annuities to provide a way to grow your income while minimizing risk and protecting your initial investment. How is this possible? Simply put, it's possible by combining two types of annuities into one investment portfolio. The two types of annuities are traditional CD-type fixed annuities and immediate annuities. Together, this is known as a split-funded annuity strategy. The basic premise of this strategy is to buy an immediate annuity to protect the investor's baseline income level and then use a CD-type fixed annuity in which to invest surplus money so that the investment can continually grow. The objective is that this growth stays ahead of inflation levels and affords the investor increased purchasing power and additional income over time.

What are CD-Type Fixed Annuities and Immediate Annuities?
A CD Fixed Annuity is one of the simplest forms of investment. Typically, your investment will run over a fixed period of time which is most commonly 5 or 10 years. For the length of the contract period, you will be guaranteed a fixed rate of return. Often, you can select a policy which will increase your return every year, providing you with the best overall return. An immediate annuity is a basic investment that is purchased with a single payment where you get a return over a period of time. This is the most common type of investment for retirees.

How Does the Split-Funded Annuity Strategy Work?
Here's an example using a few basic figures. Assume you are a male retiree that is 65 years old. Let's say that upon retirement, you have $140,000. If you were to invest the full amount in an immediate annuity, you would likely receive a guaranteed income of around $10,884 a year. However, with inflation over time, the purchasing power of the $10,884 a year will be greatly reduced. A better option is to look at splitting the investment between an immediate annuity and a CD-type fixed annuity. If you were to take $100,000 of the total investment and place that in an immediate annuity, you could get approximately $8,820 in payouts per year. Added to that, you can select a policy that will provide you with a 3 percent increase per year which means the increased earnings will be just over 15 percent every 5 years.


At this point, you have a decent income from your immediate annuity investment, and you still have an amount of $40,000 available to invest. Taking that $40,000, assuming you can get a 5 percent interest rate, you then invest $20,000 into a 5-year CD-type fixed annuity and $20,000 into a 10-year CD-type fixed annuity. When the 5-year investment matures, you will receive approximately $25,525. You can then take $15,280 of that and invest that in an immediate annuity which will give you $1,309 per year in returns. Increasing at 3.2 percent a year, you once again will have accumulated more than 15 percent over the total 5-year period. You will now be earning approximately $9,525 per year on your investments. You then take the remaining $10,345 from the 5-year policy that has matured and invest that in a 10-year CD-type fixed annuity earning you at least 5 percent per annum.

Repeating this strategy when each 10-year policy matures, you will effectively be taking a lump sum from the CD-type fixed annuity that matures every 5 years and adding this to your immediate annuity investments. Continue this cycle as each policy matures and every 5 years you will be exponentially growing your earnings. At age 90, 25 years after retirement, you will be earning almost $18,000 per year which is close to double what you would have earned had you placed it all in an immediate annuity.Annuity Rate Shopper.com was started to simplify the annuity buying process. Comparing between competing fixed annuity rates to help figure out which one is best suited for your needs. Visit online today.