Is It a Good Idea To Buy Multiple Annuities?

When Does Buying Multiple Annuities Make Sense?

The idea of acquiring multiple annuities may initially seem overwhelming because of the financial commitment involved, but — under the right circumstances — it can be a game changer for your retirement income strategy.

Diversifying through multiple annuities offers a blend of benefits, allowing you to tailor your financial strategy to meet your long-term goals seamlessly.

When You Have the Principal To Invest

While there are always exceptions, annuities typically require a substantial investment from buyers. The smallest immediate annuities, for example, still generally require at least $25,000 to make the purchase worthwhile.

There are also many associated fees and commissions that can play a role in further driving up the cost of annuities. Because each annuity you purchase comes with fees, including fees for things like commissions and administrative costs, they can easily add up if you buy multiple products.

For those without the financial capability, venturing into multiple annuities may not be the most fitting strategy. 

But for those who do have the means to participate, purchasing multiple annuities can provide many strong benefits. Owning more than one annuity can help you to diversify your assets, set up multiple payment streams to assure income in retirement and take advantage of the best features of various types of annuities.

When You Want To Diversify Your Portfolio

“Owning multiple annuities can provide diversification in terms of insurance companies, product types and investment strategies,” Brandon Juodikis, Certified Financial Planner^TM 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.”

When You Want To Increase Retirement Income

You may find that buying 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,” Certified Financial Planner^TM professional Michael Olivia told Annuity.org. 

Olivia described his clients who realized they could 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.

Matching Advantages of Different Annuities

One of the great benefits of annuities is the sheer volume of options available. There are many base versions that all include their own forms of customization, allowing buyers to craft the product that makes the most sense for their situation.

But every option isn’t available on every annuity. You may not get all the features you want through just one purchase. This is where buying multiple annuities comes into play. 

Say that you are interested in the perks of a deferred long-term care annuity. This is a type of product that creates a fund to help eventually pay for potential long-term care expenses.

You may desire the security of knowing your long-term care will be paid for while also looking for immediate payments that are not available from a deferred product. In that situation, you could opt to purchase both a long-term care annuity and a single premium immediate annuity (SPIA).

While your wants of both long-term care coverage and immediate payments were not available through one product, they are both easily achievable by buying two annuities.  

Another example of purchasing multiple annuities to take advantage of different strengths is buying separate products with different levels of risk.

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.”

This can serve as a way to essentially hedge your bets, guaranteeing yourself some predictable income while still taking advantage of a riskier product.

Laddering Multiple Annuities

Multiple annuity owners commonly employ a buying strategy called laddering.

Laddering annuities essentially involves buying separate annuities at different times to emphasize their advantages, either by strategically considering current market conditions or the timing of when payment streams begin.

“Laddering is often used with bonds, but you can buy multiple annuities,” Rob Williams, the managing director at the Schwab Center for Financial Research, told Annuity.org. “Buy one today with a certain amount of money, an income annuity to get you a certain amount of income. And then, say in a year or two, buy another with another lump sum.”

A common example of laddering involves taking the principal you are willing to place in one annuity and instead allocating it toward several annuities over a period of years. This allows the buyer to take advantage of the best annuity rates and products available at different times.

“When you’re buying an immediate annuity, you’re turning over a lump sum of money and you’re getting a payout rate that’s generally locked in for the rest of the annuity,” Williams explained. “And that payout rate changes based on the markets. Any particular day or week, they may offer a higher or lower payout rate for someone who purchases an annuity at that time.”

By purchasing multiple annuities over time, you can spread out risk and avoid your entire purchase being based on one snapshot of the market.

In the same way that laddering CDs can be beneficial for diversifying between short and long-term rates, laddering fixed deferred annuities can act as a layered savings vehicle. Annuities have the added benefits of tax-deferred growth and also typically higher rates of return which can be attractive for savers trying to maximize their growth.

Stephen Kates, CFP®Principal Financial Analyst for Annuity.org

Stephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for Annuity.org, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.

Alternatively, buyers might ladder annuities by structuring them so that they mature — and begin paying out — at different times, allowing them to receive additional income the later they get into retirement.

Staggering payments to begin the older you get can also serve as a strong way to protect against the impacts of inflation.

Pros and Cons of Multiple Annuities

Purchasing multiple annuities can be a helpful retirement income strategy with many benefits. But owning more than one annuity might not be right for you. It’s important to weigh the pros and cons before making such a major financial decision with long-term implications. 

There are many benefits to buying multiple annuities, including increasing the diversification of your assets. Purchasing multiple products also allows for increased customizability and gives you the chance to capture all the features or riders that you are interested in.

Timing the market and having access to better rates down the road is another big plus. You may also find as you get further into retirement that purchasing more annuities can serve as a way to simplify your portfolio.

“As people get a little bit older, you may say ‘I’m getting to the point where I’d really rather have a guaranteed income stream. I like having that pension-like payment,’” Williams noted. “And so, starting off with one annuity and then maybe five years later when you’re getting old, ‘I don’t really want to manage a portfolio to generate the income I need. I’d rather turn that over to an annuity company so that it’s guaranteed.’”

But on top of the many benefits of multiple annuities, there are drawbacks to be mindful of as well. 

Many annuities come with fees and commissions, and you’ll likely be on the hook for these with each annuity you purchase. Annuities also lack liquidity, which can be a concern for some people. Other easily overlooked drawbacks are the added complexity and demands for increased portfolio management.

“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,” added financial expert and Annuity.org contributor Thomas J. Brock.