Retirement Investing Strategies and Articles

Three Kinds of Annuities for Wealthy People to Consider

by Alli Thomas

Dec 20, 2022

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. These financial products can provide a guaranteed stream of retirement income, along with other potential benefits. 

While the benefits of annuities are not as significant for high net worth individuals that have significant assets to rely on, there are still some that can prove advantageous to have as part of a comprehensive retirement plan. Here are three kinds of annuities that are worth considering for wealthy investors: 

Longevity Annuity

One of the top concerns of most retirees 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 the annuitant (the person buying the annuity) reaches a certain age, typically around 80. After that, the annuity pays guaranteed income for life. 

The downside? If the annuitant dies prior to reaching the minimum payout age, their beneficiaries get nothing. 

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 annuitants (who may always withdraw the funds at a later date) as well as beneficiaries. If the annuitant ends up not using the long-term care rider, the annuity may be bequeathed, bypassing probate. 

Charitable Gift Annuity

Charitable gift annuities allow investors to generate income, reduce tax liability, and donate to a charitable organization all at once.  

To start the annuity, the annuitant makes a donation – in some cases, as little as $5,000 – to a single charity that is put into a reserve account and invested. Based on the annuitant’s age at the time of the donation, they will receive a fixed periodic payout for life. After the annuitant passes, the charity receives the remainder of the 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 the 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. 

Evaluate Annuities as Part of Your Retirement Planning Process 

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.  

However, buying an annuity can take up a significant amount of your liquidity and they are not without risks. If you’re thinking about buying one, it is best work with a financial advisor and make that investment decision as part of a comprehensive retirement planning process — especially if you’re a high net worth individual. Your advisor can help you fully understand the pros and cons of a particular annuity and what, if any, alternative options may work better for your unique financial situation. 

Don’t have a financial advisor yet or want a second opinion about your retirement plan? 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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