Do wealthy people use annuities?


Editorial team Published on

Yes, some wealthy people do buy annuities, though they use them differently than the average investor.

While middle-class retirees often buy annuities purely to cover basic living expenses, high-net-worth individuals buy them for specific strategic advantages. According to insights from Annuity.org, wealthy investors typically utilize simpler products like Multi-Year Guarantee Annuities (MYGAs) or single-premium streams rather than complex variable contracts.

Why Wealthy People Buy Annuities

  • No Contribution Limits: Traditional retirement accounts like 401(k)s and IRAs cap annual savings. Annuities have no IRS contribution limits, allowing wealthy individuals to shelter large sums of cash at once.
  • Tax-Deferred Growth: Earnings inside a deferred annuity grow tax-free until withdrawals begin. This helps manage high tax brackets during peak earning years.
  • Asset Protection: In many states, annuities feature legal protections that shield funds from lawsuits, judgments, and creditors.
  • Bypassing Probate: Annuity contracts pass directly to named beneficiaries without going through expensive and public probate court proceedings.
  • Risk Reduction & Psychology: Wealthy individuals often have high financial exposure in private businesses or volatile markets. Allocating a portion of wealth to a guaranteed payout provides a psychological safety net, creating a predictable "paycheck" that lets them spend freely without market anxiety.

Why Many Wealthy People Avoid Them

  • High Fees: Complex products (like variable or indexed annuities) often carry steep administrative, management, and rider fees.
  • Illiquidity: Locking large amounts of capital into long-term insurance contracts reduces overall portfolio flexibility and misses out on higher potential gains in the broader stock market.
  • Forum Consensus: Opinions on Reddit's r/FinancialPlanning are mixed; users note that while some modern products suit specific risk-transfer goals, agents frequently push high-commission, overly complex annuities that underperform compared to a diversified low-cost portfolio.