Annuities for High Net Worth Individuals

Because annuities come in different forms and styles, there are plenty of options to make them suited to HNWI.

Retirement is expensive. According to USA Today, retirement costs an estimated $1.1 million in the United States. Even those who have made plenty of money throughout their career may look for ways to supplement their income later in life.

Annuities offer several features that can cater directly to HNWI.

One of the biggest advantages to buying an annuity is the fact that contributions are tax-deferred. You typically don’t begin paying taxes until you are receiving payments from the annuity.

There is also usually no contribution limit, differentiating annuities from other savings vehicles such as 401(k)s. This feature can be particularly useful to HNWI who want to invest significant money and not have to worry about running up against a cap or limit.

The variety of annuities available can make it easy for HNWI to settle on a product that makes sense for their specific needs and situation.

There are several types of annuities, and no one type is a perfect match for all HNWI. Your specific situation and what you are hoping to accomplish will help narrow down which type of annuity makes the most sense for you.

We generally categorize annuities into deferred and immediate options. Deferred annuities are paid into over time and then eventually pay out as a stream of payments. Immediate annuities involve investing a lump sum all at once and then immediately receiving payments.

Fixed annuities offer a lower-risk option. Whether immediate or deferred, fixed annuities see a fixed rate of interest or payout, with no fluctuation due to market conditions or any other changes.

This type of annuity can be helpful to HNWI as a way to secure a stream of payments without having to worry about taking on any risk or uncertainty in the process.

Indexed annuities offer more uncertainty than fixed annuities, but also a higher chance for your investment to grow. Indexed annuities are tied to the performance of an index, like the S&P 500.

The interest earned on the annuity then varies with the performance of that index, allowing the potential for significant growth. As a result, there is a potential risk if the index performs poorly.

There is a subtype known as a fixed indexed annuity that can mitigate risk by including caps in both directions. So, your interest will only grow to a certain point even if the index exceeds that point. But it can also only fall so far, even if the index is performing worse.

Single premium immediate annuities, or SPIAs, are a straightforward option that can offer a lot of appeal to HNWI. In this style of annuity, you pay a single lump sum premium into the annuity and then immediately begin receiving a stream of payments.

If you have a lump sum of cash on hand, it’s a simple way to immediately stretch that money to last you years.

For HNWI looking for the gains that can come from taking on risk, variable annuities are a strong option.

Variable annuities are invested in things like stocks and bonds. This gives you the chance to see dramatic growth in your investment. But, it also means that there is a lot more risk. If the investments perform poorly, that will reflect in the annuity.

According to the U.S. Securities and Exchange Commission, these types of annuities are geared toward long-term goals, like retirement, instead of short-term goals.

Variable annuities can be attractive to HNWI who have enough money to where a certain level of risk is not a concern or those willing to wait for a profitable return.

There are many alternatives to annuities for HNWI, whether their goal is to create income for retirement or to grow existing investments.

Retirement plans such as 401(k)s and IRAs are straightforward and popular ways to save money for retirement. But they may include more limitations than annuities, such as including contribution limits.

There are also traditional investment options available to HNWI to grow their money in the short term that may be more effective than conservative types of annuities.

Editor Samantha Connell contributed to this article.