Do Rich People Use Annuities? The Surprising Truth About Wealth and Risk Transfer

Ever wondered if those yacht-owning, private-jet-flying wealthy folks actually buy annuities? You might think these financial products are just for regular retirees, but the reality might surprise you. Let’s dive into why the rich actually love annuities – and no, it’s not just because they have money to burn.

The Secret Rich People Know About Annuities

First off, yes – wealthy people definitely use annuities. But why would someone with millions in assets bother with a product that’s often misunderstood and sometimes criticized?

The answer is pretty simple rich people didn’t get rich by being dumb with their money They understand something fundamental about wealth management that many of us miss – transferring risk can be just as important as generating returns

As Stan Haithcock (known as Stan The Annuity Man) puts it: “The reason a lot of rich people are rich is because they’re smart. Smart people like to transfer risk, and annuities are contracts that allow you to transfer risk.”

Why Would Someone Rich Need an Annuity?

Let’s be honest – if you’ve got $50 million in the bank, you probably don’t need an annuity for basic retirement security. But wealthy individuals use annuities for specific strategic purposes:

1. Protection from lawsuits and creditors – In many states like Florida and Texas, annuities offer protection from frivolous lawsuits and creditors
2. Tax-deferred growth – The wealthy hate paying unnecessary taxes just as much as anyone else
3. Creating legacy plans – Guaranteeing income for spouses and children
4. Principal protection – Even rich folks don’t like losing money
5. Guaranteed lifetime income – Peace of mind comes at all wealth levels

Real Examples of How the Wealthy Use Annuities

Let me share a couple real examples that show exactly how the rich use these products:

The Futures Trader

Stan describes a multi-millionaire client who was a corn futures trader. Did he need an annuity for himself? Absolutely not. But he bought a Deferred Income Annuity for his wife who “could give a rip about corn futures.” This guaranteed that when he died she’d have guaranteed income without having to take over his complex trading business.

The Tax-Savvy Investor

Many wealthy individuals in Florida and Texas buy Multi-Year Guarantee Annuities (MYGAs) specifically because the interest grows and compounds tax-deferred in a non-IRA account. Unlike CDs which require annual tax payments on interest earned MYGAs allow them to push “the tax puck down the ice.”

What Types of Annuities Do Rich People Buy?

Rich folks tend to gravitate toward certain types of annuities:

• Multi-Year Guarantee Annuities (MYGAs) – Think of these as CD-like products with tax advantages
• Immediate Annuities (SPIAs) – For creating guaranteed income streams
• Deferred Income Annuities (DIAs) – To create future income for themselves or loved ones
• Qualified Longevity Annuity Contracts (QLACs) – For tax planning with IRAs

Notice what’s missing? You don’t often see wealthy individuals jumping into complex, high-fee variable or indexed annuities with complicated surrender charges and market-based promises. They stick to simple, contractual guarantees.

The 4 Main Reasons Rich People Buy Annuities

According to experts, wealthy individuals use annuities to solve for what Stan calls “The P.I.L.L.”:

1. P – Principal Protection: Wealthy people value protecting what they’ve already earned
2. I – Income for Life: Guaranteed income streams that can’t be outlived
3. L – Legacy Planning: Creating inheritance plans with guaranteed payouts
4. L – Long-Term Care: Transferring risk for potential healthcare needs

The Rich Person’s Approach to Annuity Shopping

When wealthy individuals shop for annuities, they approach it completely differently than how most people are sold these products:

• They focus exclusively on the contractual guarantees, not hypothetical returns
• They compare multiple carriers to find the highest payout for their specific situation
• They avoid annual fees whenever possible
• They don’t try to use annuities for market growth – they use them purely for what they’re good at (risk transfer)

Are Annuities Only for the Rich?

Here’s the interesting part – the benefits that make annuities attractive to wealthy individuals apply to everyone else too:

• Everyone needs some level of guaranteed income
• Everyone benefits from protection against creditors
• Everyone wants to minimize taxes on interest
• Everyone wants to protect their principal

As Stan puts it: “Everyone is the same as those evil rich people. So, stop throwing stuff at their yachts as it comes by.”

Common Annuity Strategies Used by Wealthy Individuals

Let’s look at some specific strategies wealthy people use with annuities:

1. MYGA Ladders for Tax-Deferred Growth

Rich investors often create “ladders” of Multi-Year Guarantee Annuities with different maturity dates. This gives them:

• Guaranteed interest rates higher than most bank products
• Tax-deferred growth on the interest
• Liquidity as different contracts mature at different times

2. Immediate Annuities for Spousal Protection

Many wealthy individuals use Immediate Annuities to ensure their spouse will have guaranteed income if they die first. This provides:

• Income that can’t be outlived
• Protection from poor financial decisions after grief
• Peace of mind that basic expenses will always be covered

3. QLACs for RMD Planning

For wealthy retirees with large IRAs, Qualified Longevity Annuity Contracts allow them to:

• Reduce Required Minimum Distributions until age 85
• Create guaranteed future income
• Potentially reduce tax burden in early retirement years

The Rich Person’s Mindset About Retirement Security

One thing that separates wealthy people from others is how they think about security. They understand something crucial:

“It’s not about having the most money when you die. It’s about having the most security while you live.”

Rich people use annuities not to get richer but to protect what they already have and ensure they can maintain their lifestyle regardless of what happens with markets, inflation, or longevity.

Are Annuities Right for You (Even If You’re Not Rich)?

You don’t need to be wealthy to benefit from annuities, but you should approach them with the same mindset as rich people do:

• Focus on what annuities guarantee, not what they might do
• Only buy them for their contractual promises
• Compare multiple offers to get the best deal
• Never pay fees or surrender charges unless absolutely necessary
• Use them as part of a comprehensive plan, not as a one-size-fits-all solution

The Bottom Line: What We Can Learn From How the Rich Use Annuities

The wealthy approach annuities strategically and unemotionally. They:

1. See them as risk transfer tools, not investments
2. Focus on the guarantees, not the “potential”
3. Use them for specific purposes within a broader plan
4. Negotiate for the best terms and rates
5. Avoid unnecessary fees and complexity

As one wealth manager put it, “My richest clients are often the most conservative with their core capital. They didn’t get wealthy by gambling with their foundation.”

Final Thoughts

So, do rich people use annuities? Absolutely. But they use them very differently than how they’re often sold to everyday investors. They focus on contractual guarantees, avoid high fees, and use them to transfer specific risks.

Whether you’re worth $5,000 or $50 million, there’s wisdom in this approach. As Stan The Annuity Man says, “Never forget to live in reality, not the dream, with annuities and contractual guarantees!”

Warren Buffett is generally skeptical of annuities, particularly variable annuities with high fees and complex guarantees, which he believes are often underpriced and risky for insurers. However, he has acknowledged that certain annuities, like a guaranteed lifetime income annuity, can be a useful tool for some retirees to secure a portion of their retirement income, and he suggests people should be critical and look for simplicity in contracts.