Retirement Investing Strategies and Articles

Three Kinds of Annuities Wealthy People Should Consider

by Alli Thomas

May 6, 2021

Annuities have been around since the Roman Empire, but many investors still find them confusing due to the range of options available and the associated fees.

Contrary to popular belief, wealthy people can benefit from buying annuities. Here are three kinds worth considering:

1. Longevity Annuity

One of the top concerns of most retirees, wealthy or not, is that they will outlive their savings. A longevity annuity (also called an advanced life deferred/delayed annuity) can provide some peace of mind. Payouts do not begin until you reach a certain age, typically around 80. After that, the annuity pays guaranteed periodic income for life.

The downside? If you die prior to reaching the minimum payout age, your beneficiaries get nothing.


2. Hybrid Long-Term Care Annuity

Hybrid long-term care annuities combine the features of a fixed annuity with a long-term care rider. These annuities have become more popular in recent years as standalone long-term care insurance premiums have jumped and many insurers are no longer willing to offer traditional long-term care policies.

The hybrid long-term care annuity takes a regular deferred fixed annuity with a fixed interest rate, but uses a portion of the interest earnings to fund a long-term care rider. This type of annuity benefits both its owners (who may always withdraw the funds at a later date) as well as beneficiaries – if no long-term care for the owner is needed, the annuity may be bequeathed, bypassing probate.


3. Charitable Gift Annuity

Charitable gift annuities allow you to generate income, minimize taxes, and donate to a charitable organization all at once. You make a large donation – in some cases, as little as $5,000 – to a single charity that is put into a reserve account and invested. Based on your age at the time of the donation, you will receive a fixed periodic payout for life. After you die, the charity receives the remainder of your donation.

Aside from the income generated by these charitable gift annuities, you may also be able to claim a tax deduction at the time of your original donation, based on the estimated amount that the charity will receive after all annuity payments have been made. Based on your life expectancy, part of the payments you receive may also be tax-free.

Benefits include a guaranteed lifetime income stream (some of which may be tax-free), an immediate tax deduction of the donation, and flexibility in gift types (cash, personal property, securities). The drawbacks: once you make the donation, it cannot be refunded. Additionally, the income stream generated by the charitable gift annuity will not be adjusted for inflation.

There are many types of annuities and though some have a bad rap, the right annuity can be the best solution for an investor’s retirement needs. If you would like to learn more about annuities and whether one may be a good option for you, request a complimentary, no obligation conversation with a member of our financial advisor network today!

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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