In the past, many wealthy investors shied away from annuities, traditionally a middle class investment used to pay basic living expenses in retirement. More and more of the wealthy population realizes the guaranteed lifetime income and tax benefits they will receive from purchasing annuities, according to “An Annuity: What No Well-Heeled Client Can Do Without.” Warren Hersch’s article, from the National Underwriter, discusses the benefits that clients with a high net worth will receive from a fixed, variable, or indexed annuity. A study by Cogent Research showed that 34% of affluent investors have purchased an annuity, an increase of 4% in the past 4 years. The recession that started in 2007 is one of the biggest reasons for the change. People from all income classes have switched to low-risk investments to hedge their losses.
As the wealthy prepare to get hit harder by President Obama’s impending tax hikes, they are finding more value in investments like annuities that defer income taxes. You won’t pay taxes on your annuities until you start receiving the income and it’s quite possible that you’ll be in a lower tax bracket by then if you’ve retired. Wealthier investors are less worried about the riders associated with a variable annuity or purchasing a death benefit annuity. Those mainly looking for growth that is protected from taxes want the basic annuities without paying for added bells and whistles. The article suggests that you look for an annuity that pays out on a pro rata basis, which takes both principal and taxable gains with each payment rather than beginning your payments with only the taxable gains. As with any annuity investor, research your product fully before making your investment.