Some wealth advisors turn red, white or gray at the thought of their high-net-worth clients buying annuities.
For high-net-worth clients, the concern is that annuities create taxable income. The last thing most wealth advisors want is to increase their clients' tax bills.
Jack Elder, a tax attorney who serves as the senior director of advanced sales at CBS Brokerage, believes that wealth advisors should consider using immediate annuities to clients and their families rather than tapping invested assets for the cash needed to cover their "MUG": mortgage, utility and grocery costs.
If clients have more protected income from sources such as pension plans, Social Security and annuities, "they don't need to consume their assets under management to support their lifestyle," Elder said in an email interview. "If they allow their managed assets to compound without spending them down, legacy assets are increased."
What it means: Even HNW clients need a stream of income they can use to pay the bills.
Single-premium immediate annuities: A single-premium immediate annuity, or SPIA, is a product that converts one big pot of cash into a stream of guaranteed income.
