- You can purchase more than one annuity to diversify your retirement income streams and take advantage of features from multiple products.
- The most popular strategies for purchasing multiple annuities are split annuities and annuity laddering.
- MYGAs are one of the most popular products used in annuity laddering.
- Purchasing more than one annuity might make sense if you have a large amount of retirement assets and want diversification without full market participation.
Is It Possible To Have Multiple Annuities?
Owning multiple annuities is a viable strategy for many people who want guaranteed income in retirement along with other benefits. You can purchase multiple annuities at the same time or buy one to start, and get another one later.
When you purchase an annuity, you’re trading a premium payment for a stream of income later on. Annuities come in a wide variety of types, each with different payout schedules and ways of accumulating value.
By purchasing multiple annuities, you could mix and match the features of different products to create a retirement income strategy that has all the benefits you want.
Pros and Cons
Purchasing multiple annuities can be a helpful retirement income strategy with many benefits. But owning more than one annuity might not be right for everyone. It’s important to weigh the pros and cons before making a major financial decision, like purchasing one or more annuities.
- Multiple income streams
- Increased customization
- Access to better rates and terms
- Can be costly
- More complicated than a single annuity
- Lack of liquidity
You might choose to purchase multiple annuities instead of just one to diversify your assets while still getting all the advantages of annuities. “Owning multiple annuities can provide diversification in terms of insurance companies, product types and investment strategies,” Brandon Juodikis, a Certified Financial PlannerTM professional and founder of BRJ Wealth Management, told Annuity.org.
Juodikis also pointed out that getting more than one annuity “helps spread the risk and can potentially enhance overall portfolio stability.”
Buying more than one annuity also means creating multiple income streams. You could structure your contracts so that each one annuitizes – that is, converts to income payments – at a different time. And if the annuities purchased have different accumulation rates or were purchased with different premium amounts, the amount each annuity pays out each month will also vary.
Certified Financial PlannerTM professional Michael Olivia offered this example: “[You] might purchase a fixed, immediate annuity that provides a level, guaranteed income stream for [your] lifetime, and pair that with a variable annuity or index-linked annuity that provides additional potential upside participation to keep pace with long term risks such as inflation.”
Besides creating diverse income streams, buying multiple annuities also grants you more access to customization options or even better rates. By shopping around, purchasers of more than one annuity can “compare offerings from different insurance companies and potentially secure more favorable rates, terms and benefits,” Juodikis said.
Annuities are complicated financial products, and managing more than one might be overwhelming for some people. “Each contract will have different terms, conditions and charges,” Olivia said – which “might prove difficult to manage.”
Having multiple annuities also magnifies some of the other general disadvantages of annuities. For one thing, annuities are very illiquid investments, and canceling or withdrawing funds from an annuity can be costly. “Owning multiple annuities may tie up a significant portion of one’s assets, potentially limiting access to funds in case of unforeseen needs,” Juodikis said.
Annuities themselves can be expensive, requiring large premium payments upfront and in some cases, additional fees and charges. You may have to put down a lot of money at once to purchase multiple annuities.
Alternatively, you could split the amount you would have used to purchase one annuity and buy multiple annuities with smaller premiums instead. However, this means that each annuity will be smaller and have a smaller payout when it eventually annuitizes.
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I am a big proponent of diversification – not only across asset classes, but also within asset classes, especially when it comes to ensuring a stable stream of income with moderated interest rate risk. This is where buying multiple annuities can make a lot of sense. That said, owning multiple annuities increases the complexity of your portfolio and could necessitate more hands-on involvement, which is the last thing most annuity investors want.
Strategies for Buying Multiple Annuities
Investors can employ a few different strategies when buying multiple annuities. Some common strategies include a split annuity or laddering annuities.
When you purchase a split annuity, you’re actually funding two annuities, one immediate and one deferred. The immediate annuity, as its name suggests, begins payments immediately, while the deferred annuity accumulates value for a set number of years before annuitization.
With the split annuity model, the immediate annuity is designed to pay out for the length of the deferred annuity’s accumulation phase. This setup means that once the first annuity finishes payments, you’ll start receiving payouts from the second annuity.
You can ladder annuities just like other financial products like CDs or bonds. “Laddering” refers to dividing up your total investment into several smaller annuities over a number of years.
One advantage of laddering annuities is that you can try to mitigate opportunity costs. By purchasing annuities at multiple times over several years, you can reduce the risk of buying when interest rates are low.
“Laddering annuities allows individuals to take advantage of potentially rising interest rates,” said Juodikis. “As each annuity matures, they can reinvest the proceeds into a new annuity with more favorable rates, thus mitigating the risk of locking into lower rates for an extended period.”
Juodikis also noted that laddering annuities can help you manage the liquidity of your assets. “With a laddering strategy, individuals have access to periodic payouts from their annuities, providing ongoing cash flow while still benefiting from the long-term growth potential of the remaining annuities.”
What Types of Annuities Are Best for Laddering?
The best types of annuities for laddering are dependent on your financial priorities. You may choose to ladder multiple annuities of the same type, or you may choose a different product for each “rung” in your annuity ladder.
Multi-year guaranteed annuities, or MYGAs, are a popular choice for annuity laddering. MYGAs accumulate interest at a guaranteed rate for a set number of years before annuitizing. Because the interest rate is guaranteed, the returns and income from MYGAs are very predictable.
However, because the interest rate is fixed, MYGA purchasers run the risk of becoming locked into an unfavorable rate and not being able to take advantage of rising interest rates. This is where laddering can help; as previously mentioned, a major benefit of laddering annuities is the flexibility to enter the market at different times, minimizing the risk of lower returns.
Read More: Reasons To Buy An Annuity
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When Does Having Multiple Annuities Make Sense?
Having multiple annuities might make sense if you have a large retirement portfolio and want to continue receiving guaranteed income after you stop working. “Each dollar allocated to an annuity can increase the guaranteed income in retirement,” Olivia told Annuity.org.
Olivia described clients who were able to have all of their expected retirement expenses covered by guaranteed income from annuities. “We’ve had cases where we were able to guarantee 100% of the client’s retirement cash flow needs, giving them absolute freedom on how they want to manage, invest and inherit their other assets,” Olivia explained.
Investors who want to diversify their retirement assets while also minimizing risk might find multiple annuities especially beneficial. By purchasing annuities that are different types or from different companies, you can create additional stability in your retirement plan.
Editor Malori Malone contributed to this article.