While annuity ownership has historically been associated with middle-income retirement planning, annuities can also serve meaningful strategic purposes for high-net-worth individuals when used appropriately.
For those with substantial income and assets, annuities can play a more nuanced role in supporting tax strategies, estate planning objectives, and asset protection, while also offering varying levels of principal protection during market downturns, backed by the claims-paying ability of the issuing insurance company.
Diversification and asset allocation
For affluent individuals, diversification is not simply just about owning several investments, but involves allocating capital across various asset classes, such as stocks, bonds, real estate, and annuities. This helps balance different types of risk across a comprehensive wealth portfolio.
Annuities may complement more market-sensitive investments by offering income features that are not directly tied to daily market volatility. When integrated thoughtfully into an overall asset allocation strategy, they can help balance growth-oriented investments with income stability and risk management considerations.
Tax-deferred growth and efficiency
High-income investors often face limited opportunities for additional tax-deferred growth after maximizing contributions to qualified retirement plans such as 401(k)s, IRAs, and Health Savings Accounts (HSAs).
Unlike retirement accounts, investments held in taxable brokerage accounts typically do not provide tax deferral, meaning earnings from interest, dividends, and realized capital gains may be taxed each year. Certain annuities offer tax-deferred growth, allowing earnings to accumulate without current taxation until withdrawals begin.
Because withdrawals from annuities are generally taxed as ordinary income and may be subject to penalties if taken too early, tax outcomes depend on individual circumstances. It’s important to consult with a qualified tax professional regarding your specific situation.
Inheritance and legacy control
Annuities can play a role in legacy and estate planning when structured appropriately. Some contracts include optional death benefit provisions that allow remaining contract value or specified benefits to pass directly to named beneficiaries, subject to contract terms. Depending on the situation, beneficiaries may receive:
- The remaining account value
- A guaranteed minimum death benefit (if elected)
- Ongoing income payments over time
Because annuities are generally long-term financial vehicles and may include surrender periods or liquidity limitations, they are often evaluated alongside broader estate planning goals.
In some cases, annuities are structured with a child or other family member in mind, providing scheduled payments over time rather than a lump-sum distribution. This approach may help align wealth transfer with long-term income planning objectives for beneficiaries.
Start the conversation
For high-net-worth individuals, annuities shouldn’t serve as a one-size-fits-all solution, but as specialized planning tools that enhance portfolio diversification, provide planning flexibility, and help align financial decisions with long-term goals. Working with a financial advisor can help determine whether, and how, an annuity may fit appropriately within an overall financial plan.
If you have any questions about how annuities may strengthen your retirement income and overall tax strategy, please give us a call! Contact your Park City Wealth Advisors to begin the conversation.
Sources:
https://www.investopedia.com/why-annuities-are-popular-11748169
https://www.msn.com/en-us/money/personalfinance/5-annuity-strategies-for-high-net-worth-individuals/ar-AA1Kjj3d
https://www.annuityexpertadvice.com/high-net-worth-individuals/
https://www.annuity.org/annuities/buy/high-net-worth-individuals/
https://www.annuity.org/2023/09/16/annuity-owners-often-middle-class-new-survey/
