Income Now and the Potential for Future Income Later

Many retirees want maximum dependable income today, but also worry about where future income will come from once those payments stop. 

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One solution is COMBINING a 10-Year Period Certain Single Premium Immediate Annuity (SPIA) with a 10-Year Fixed Indexed Annuity (FIA).

 

This approach provides immediate monthly income while allowing a separate pool of money to be positioned for tax-deferred growth. 

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Let's look at how this strategy could work for someone with $500,000. If you have $1,000,000, the numbers would simply double. At $250,000 the numbers would be half.

 

 

Immediate Income From a 10-Year SPIA

 

One half of the $500,000 - $250,000 - in our example is directed here.

 

A $250,000 deposit into a 10-Year Period Certain SPIA can currently generate over $2,500 per month in guaranteed payments.

 

Monthly deposits into your bank account of around $2,540 per month for 120 months - to start within 30-days.

 

That's approximately $31,000 per year in guaranteed income for 10 years. 

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For non-qualified funds (not IRAs or 401(k)), approximately 80% of each payment may be received income-tax free under current exclusion ratio rules, making this an exceptionally tax-efficient source of retirement income. 

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Less than $6,000 of the $31,000 received each year is taxable interest.

 

Key Benefits

 

• Guaranteed monthly income that is often higher than other options

 

• Predictable cash flow month after month

 

• No market risk - the amount of your check never changes

 

• Significant tax efficiency - up to 80% free from income tax for non-qualified deposits

 

• Payments continue for the full 10-year guarantee period - to you or the beneficiaries you select

 

For retirees seeking dependable income, this creates a private pension-style paycheck that arrives every month regardless of what happens in the stock market. 

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Positioning the Other $250,000 for Growth

 

The second $250,000 is placed into a Fixed Indexed Annuity (FIA). Possibly with interest linked to the S&P 500® Index. Currently these Indexes offer annual "caps" or maximum potential interest of 10.5% to 13.0%.

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The account value in a FIA is protected from market losses while earning interest based on index performance, subject to contract limitations such as participation rates and caps. 

 

Key Features

 

• Principal protection

 

• Tax-deferred accumulation

 

• No direct exposure to stock market losses

 

• Opportunity to benefit from market gains

 

• Current cap example of 9% annually

 

While the SPIA is distributing income, the FIA continues working in the background with the goal of providing future retirement resources. 

 

 

A Retirement Income "Bridge" Strategy

 

Think of the SPIA as your income bucket and the FIA as your replacement-income bucket. 

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During the first 10 years: 

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• The SPIA provides over $2,500 per month.

 

• The FIA remains untouched and has the opportunity to grow.

 

• You receive consistent income without drawing from the FIA.

 

At the end of the 10-year SPIA payout period: 

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• The FIA may have accumulated substantial value.

 

• Those funds can be repositioned to create future income.

 

• The accumulated value can help replace some or all of the SPIA income stream.

 

• Additional options may include systematic withdrawals, annuitization, or leaving assets growing for beneficiaries. You remain in control.

 

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Why This Strategy Appeals to Retirees

 

Income and Growth Working Together.

 

Instead of choosing between income and growth, this strategy uses both. 

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Tax Efficiency

 

A large percentage of the SPIA payments may be excluded from current taxation when funded with non-qualified money. 

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Market Downside Protection

 

The FIA protects principal from market declines while still offering growth potential linked to the performance of the S&P 500® Index. 

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Future Income Flexibility

 

By allowing a separate portion of assets to grow while income is being received, retirees can create a potential source of future retirement income when the SPIA period ends. 

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Peace of Mind

 

Knowing that income is arriving every month while another portion of assets remains positioned for future opportunities can provide confidence throughout retirement. 

 

 

Is This Strategy Right for You?

 

The combination of a 10-Year SPIA and a 10-Year Fixed Indexed Annuity is designed for people who want: 

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• Immediate retirement income

 

• Favorable tax treatment

 

• Protection from market losses

 

• The opportunity for future growth

 

• A plan for replacing income after the SPIA period ends

 

At Serious Money Ohio, we help retirees evaluate income strategies designed to maximize cash flow while maintaining long-term financial flexibility. 

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I update the Annuity Rate Watch page weekly for your convenience. 

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With 44 years of annuity experience, Fred Quinn helps clients understand how to use today's competitive annuity rates to build retirement income plans that fit their goals. 

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Important Disclosure:

 

This information is for educational purposes only and is not intended as investment, legal, or tax advice. Annuity guarantees are backed solely by the claims-paying ability of the issuing insurance company. Fixed Indexed Annuities are not direct investments in any stock market index. Interest credits are subject to contract provisions, participation rates, spreads, and caps. Hypothetical growth illustrations are not guarantees of future performance. Consult a qualified tax advisor regarding your individual tax situation.