Annuities in High Rates: 7 Strategies for 2026

**Are you leaving money on the table by overlooking annuities in 2026?** For high-net-worth investors, the rising rate environment has completely changed the annuity conversation. With interest rates elevated, insurance companies now offer substantially higher guaranteed payouts, competitive fixed-rate crediting, and enhanced income riders that simply weren't available during the low-rate era. If you manage $1M to $10M in investable assets, even a strategic allocation to the right annuity strategy could meaningfully enhance your retirement income and provide tax-efficient wealth management solutions. This episode explores seven proven strategies that align with fiduciary and fee-based financial planning principles, helping you understand how annuities fit into a comprehensive retirement portfolio. Discover why affluent families in Florida and nationwide are reconsidering annuities as a cornerstone of their wealth management approach. Ready to talk? Schedule a complimentary discovery call at TDWealth.net. For educational purposes only. Not investment advice. 📖 Full show notes: https://tdwealth.net/annuities-in-high-rates-7-strategies-for-2026/

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Transcript

SPEAKER_00 0:00

You know, for years, uh if you mention the word annuity to a wealthy investor, it was basically like offering them a flip phone, right? Trevor Burrus Exactly. Like completely outdated, uh clunky, and just honestly something you would easily ignore in favor of whatever the shiny new tech was in the financial world. But um we are looking at a financial landscape in 2026 that has completely flipped that script.

SPEAKER_01 0:24

Oh, it's a massive shift in capital allocation. I mean, for a long time we were just stuck in this zero interest rate environment. And because of that, mass market financial advice treated annuities as this, you know, sort of low-yield, one-size-fits-all product. Trevor Burrus, Jr.

SPEAKER_00 0:38

Right. Like you bought one because you were terrified of the stock market, right? Not because you were actually trying to optimize your wealth.

SPEAKER_01 0:43

Aaron Powell Exactly. But the underlying math has shifted so dramatically. And the real fascination right now lies in how wealthy families are suddenly using these instruments not as, you know, generic safety nets, but as highly calibrated precision tools.

SPEAKER_00 0:57

Aaron Powell Okay, let's unpack this because before we can even touch the advanced wealth building concepts, we kind of need to understand the mechanics. So our mission for today's deep dive is to explore a comprehensive guide from Thomas Davies.

SPEAKER_01 1:10

Right, of Davies Wealth Management.

SPEAKER_00 1:12

Yeah, they're a fee-based fiduciary advisor out of Stewart, Florida. And uh this guide was originally prepared for the 1715 Treasure Coast Financial Wellness Podcast. It covers critical strategies for high net worth investors in a high-rate environment, specifically looking at 2026.

SPEAKER_01 1:29

It's a fantastic resource.

SPEAKER_00 1:31

It really is. And our goal here is to give you a shortcut to understanding why investors with you know portfolios of million dollars or more are just flocking back to these instruments and how you can apply this high-level thinking to your own financial knowledge. So taking a step back, why are annuities suddenly the popular kid in class again? Like how do interest rates actually fuel the benefits we're seeing?

SPEAKER_01 1:52

Well, to understand the mechanics, you really have to look under the hood of how an insurance company actually generates the money they promise you.

SPEAKER_00 1:59

Yeah.

SPEAKER_01 2:00

I mean, when you purchase an annuity, you hand a premium to an insurer. They don't just uh lock that money in a giant vault.

SPEAKER_00 2:07

Right. They have to do something with it.

SPEAKER_01 2:09

Exactly. They immediately put those premium dollars to work, primarily by purchasing investment grade corporate bonds and you know other fixed income instruments.

SPEAKER_00 2:19

So they act almost like a like a massive pass-through entity. They take your money, buy safe yield-producing assets, and then pass a portion of that yield back to you in the form of a guarantee.

SPEAKER_01 2:30

Aaron Powell That is the core mechanism, yeah. Yeah. So when prevailing interest rates rise, like the massive spikes we've seen leading into 2026, the insurance companies are suddenly able to earn much more on the new bonds they're buying for their general accounts. And because the insurance landscape is fiercely competitive, I mean they can't just keep all that extra yield for themselves. Trevor Burrus, Jr.

SPEAKER_00 2:50

Right. They'd lose all their clients to the guy down the street. Trevor Burrus, Jr.

SPEAKER_01 2:53

Exactly. To attract billions in high net worth capital, they have to pass a significant portion of that higher yield right back to the policyholders.

SPEAKER_00 3:01

Aaron Powell And the sources note that total annuity sales actually surpassed$430 billion in 2025.

SPEAKER_01 3:08

Aaron Powell It's just massive.

SPEAKER_00 3:09

Trevor Burrus It's a staggering amount of capital moving into this space. But um the guide makes a really specific point about why this math matters so much more for a high net worth portfolio. Uh they call it the scale factor.

SPEAKER_01 3:21

Aaron Powell Yeah. Scale changes the math from just, you know, an incremental benefit to a completely life-altering strategy. Consider a mass market investor who buys a$100,000 annuity. If rates go up and they get a 4.5% rate instead of a 4% rate, that's an extra$50 a year. Which is nice, but it's nice, but it doesn't change the retirement. But for a family with a multimillion dollar portfolio, scale amplifies the math. If you get a tiny 50 basis point bump, that's just half of 1% on a$500,000 annuity, that translates to an extra$2,500 every single year. And because it's inside an annuity wrapper, that extra growth is compounding tax deferred.

SPEAKER_00 4:02

I love visualizing it like a wholesale club. You know, if you buy paper towels in bulk, you save a few dollars. But if you buy tax-advantaged compound interest in bulk, you create this sort of financial avalanche. Those saved taxes stay in the account, generating their own returns year after year.

SPEAKER_01 4:19

Exactly.

SPEAKER_00 4:20

But let's pause for a second. Because if I walked up to most people and said the word annuity, they would probably tell me they are famously expensive, totally opaque, and just way too complicated.

SPEAKER_01 4:30

What's fascinating here is how the high-rate environment has effectively separated the good products from the bad. The wrong annuities, specifically those legacy products laden with massive administrative fees and complex mortality expenses, those are indeed incredibly expensive.

SPEAKER_00 4:47

Right. They're the ones giving the whole industry a bad name.

SPEAKER_01 4:49

Precisely. And wealthy investors aren't touching those. They are utilizing highly structured, transparent contracts that benefit the most directly from these elevated bond yields.

SPEAKER_00 4:59

So let's talk about how they actually deploy this capital. I want to look at the alternatives to traditional bank products first. The guide highlights multi-year guaranteed annuities or MYGAs.

SPEAKER_01 5:10

Yeah, MYGAs are huge right now.

SPEAKER_00 5:12

For anyone unfamiliar, these function a lot like a certificate of deposit you'd get at a local bank, but with that magic ingredient of tax-deferred growth. And the guide points out that in 2026, top-rated MYGAs are offering guaranteed rates between 5.0 and 5.75% for three to seven year terms.

SPEAKER_01 5:32

And the thing is, wealthy investors almost never dump all their cash into a single time frame. They utilize a laddering concept.

SPEAKER_00 5:38

Right. So splitting it up.

SPEAKER_01 5:40

Exactly. Instead of taking half a million dollars and locking it all up for five years, they stagger the maturity dates. So they might put some in a three-year MYGA, some in a five-year, and some in a seven-year.

SPEAKER_00 5:49

Oh, that's smart. So they constantly have something maturing.

SPEAKER_01 5:52

Exactly. As each slice of that ladder matures, they evaluate their current financial picture. They can reinvest it if rates are still elevated, or they can convert it to income if their tax situation allows for it that year. It creates predictable liquidity while mitigating the risk of getting, you know, trapped in a bad rate cycle.

SPEAKER_00 6:12

The math on the tax deferral is what really blew my mind here. Let's say you have an investor in the top 37% federal tax bracket. If they buy a MYGA yielding 5.5%, that growth isn't being taxed year over year while it sits in the account.

SPEAKER_01 6:27

Right, which is huge.

SPEAKER_00 6:28

It is. To get that same net result from a traditional taxable bond, they would need a bond yielding 8.7%. And finding an 8.7% guaranteed yield in the bond market without taking on massive sleep-losing junk bond risk is basically impossible. Trevor Burrus, Jr.

SPEAKER_01 6:42

Which is why the tax deferral is doing so much of the heavy lifting for the wealthy. But you know, that only covers the growth side of the equation. Yeah. We also have to look at the income side. To protect that, they use single premium immediate annuities, or SBIAs, to create a personal pension floor.

SPEAKER_00 7:11

SPIA is arguably the simplest version of this tool, right? You just hand a lump sum to an insurer, and in exchange, they guarantee you a paycheck for the rest of your life, no matter how long you live.

SPEAKER_01 7:20

Yep, it's essentially buying a pension.

SPEAKER_00 7:21

And in this high rate environment, the payouts are massive compared to a decade ago. Like a 65-year-old couple dropping$1 million into a safe PIA today might secure a joint life payout rate of 6.2 to 6.8%.

SPEAKER_01 7:35

That's right.

SPEAKER_00 7:36

That is$62,000 to$68,000 annually guaranteed as long as either of them is breathing.

SPEAKER_01 7:41

And the psychological impact of that guaranteed income really cannot be overstated. When an investor knows their absolute baseline non-negotiable expenses are covered by this SPI floor, they are suddenly liberated to leave the rest of their portfolio invested in growth assets.

SPEAKER_00 7:56

Because they aren't panicked when the stock market goes through a severe correction.

SPEAKER_01 8:00

Exactly. They know their bills are paid regardless of what the SP 500 is doing.

SPEAKER_00 8:04

Which brings us perfectly to the concept of sequence of returns risk. Because I think this is one of the most dangerous, hidden threats to literally any retirement plan.

SPEAKER_01 8:15

Oh, it absolutely is. Yeah. Sequence of returns risk is the danger of experiencing a major market downturn right at the beginning of your retirement.

SPEAKER_00 8:23

Right.

SPEAKER_01 8:23

Let's say your equity portfolio drops 20%. If you are also forced to pull cash out of that portfolio just to buy groceries and pay property taxes, you are essentially selling off your assets at bargain basement prices.

SPEAKER_00 8:37

I have always thought of it like trying to bail water out of a leaky boat while a hurricane is still raging, you know? If you're forced to sell stocks when they're down 20%, you are locking in those losses permanently.

SPEAKER_01 8:49

Permanently.

SPEAKER_00 8:50

You're impairing the portfolio, and it might never recover, even when the broader market eventually bounces back.

SPEAKER_01 8:56

But look at how the high net worth investor solves this. They allocate 20 to 30% of, say, a$3 million portfolio to guaranteed annuity income. By doing that, they effectively eliminate that risk for their essential spending.

SPEAKER_00 9:10

So the other 70 to 80% of their wealth just stays invested in the market for the long term.

SPEAKER_01 9:16

Exactly. They never have to sell low because their annuity is providing a sturdy bridge over the market turmoil.

SPEAKER_00 9:22

Okay, so generating income and protecting the portfolio from market crashes makes total sense. But uh, as anyone who has ever looked closely at a pay stub knows, it's not what you make, it's what you keep. Very true. Here's where it gets really interesting because navigating the IRS is where these strategies really diverge from mass market advice. Let's talk about the tax game.

SPEAKER_01 9:43

Yeah, the tax nuances are where generic advice fails wealthy families the most. A major blind spot involves how withdrawals from non-qualified annuities are taxed. If you fund an annuity with after tax dollars, the IRS taxes your withdrawals on a LIFO basis. That stands for last in first out.

SPEAKER_00 9:59

Meaning the IRS forces you to withdraw your taxable gains first. The money you made comes out before the original money you put in, and those gains are taxed as ordinary income.

SPEAKER_01 10:10

Which requires meticulous management. Because if a retiree isn't careful, those LIFO withdrawals can inadvertently bump them into a higher IRMA A bracket.

SPEAKER_00 10:20

Uh IRMA is the Medicare income-related monthly adjustment amount, right?

SPEAKER_01 10:26

Right. It's essentially a hidden surcharge on your Medicare premiums based entirely on your reported income.

SPEAKER_00 10:30

And the tripwires for 2026 are steep. It's$206,000 for a single filer and$412,000 for married couples filing jointly. If an unexpected, unmanaged annuity withdrawal pushes your income even$1 over those lines, you trigger thousands of dollars in Medicare surcharges.

SPEAKER_01 10:49

It's brutal.

SPEAKER_00 10:49

But the guide points out that because deferred annuity gains don't count toward your income until you actually withdraw them, wealthy investors can legally delay taking that income to stay just under the IRMAA thresholds.

SPEAKER_01 11:00

It is all about maintaining absolute control over when and how the income hits your tax return. And for the ultra-wealthy, the tax strategies go even further into specialized territory.

SPEAKER_00 11:11

Like what?

SPEAKER_01 11:12

Well, the guide highlights private placement variable annuities, or PPVAs. This is a tool designed almost exclusively for individuals with a net worth over$5 million, usually requiring at least a$1 million minimum investment.

SPEAKER_00 11:26

I had no idea this even existed. Because I've always thought of an annuity as a rigid contract where the insurance company picks the investments. I had no idea you could use an annuity as an empty wrapper for your own alternative assets.

SPEAKER_01 11:39

That is the beauty of the PPVA structure. Think about highly taxed investments like hedge funds or private credit. In a high-rate environment, private credit is yielding substantial returns, but it also throws off a lot of taxable income every single year.

SPEAKER_00 11:52

Right, which usually gets taxed at ordinary income rates.

SPEAKER_01 11:55

Exactly. But if an ultra wealthy investor uses a PPVA, they can place those hedge funds and private credit investments inside the tax-deferred wrapper of the annuity. The investments grow without that massive annual tax drag, completely shielding that yield from a 37% tax bracket.

SPEAKER_00 12:13

That is incredible. And uh if an investor is philanthropically inclined, the guide also details something called a charitable remainder annuity trust or separat.

SPEAKER_01 12:24

Yes, separats are fascinating right now.

SPEAKER_00 12:26

So when you fund a SIPRAT, you get an immediate upfront tax deduction, you receive a fixed annuity payment for the rest of your life, and then whatever is left in the trust goes to your chosen charity when you pass away. Right. But I need you to clarify something here because the math feels completely backwards to me. The guide says that higher interest rates actually lower the upfront charitable deduction you're allowed to take.

SPEAKER_01 12:47

It does.

SPEAKER_00 12:48

Hold on, why would a higher interest rate lower my tax deduction? Shouldn't I get a bigger deduction if the trust is earning more money?

SPEAKER_01 12:54

It does feel counterintuitive until you look at how the IRS calculates it. The IRS uses a specific discount rate, known as the section 7520 rate, to determine the present value of the trust. Okay. In a high interest rate environment, the IRS assumes the trust will grow much faster. Because they assume it will grow faster, they project that you, the living donor, will pull significantly more money out of the trust over your lifetime through those fixed annuity payments.

SPEAKER_00 13:23

Oh, I see. Because they assume I'm going to siphon off more of the massive growth before I die, they shrink my upfront deduction today.

SPEAKER_01 13:30

Aaron Powell Exactly. Therefore, they calculate that less of the initial contribution's present value will actually reach the charity at the end.

SPEAKER_00 13:36

Aaron Powell Got it. But the trade-off is that those fixed payout rates I receive while I'm alive are significantly higher, which more than makes up for the smaller initial tax break.

SPEAKER_01 13:45

Right. The income is phenomenal. But this does raise an important question, though. With tax loopholes like PPVAs, IRMAA avoidance, and guaranteed 6.8% payouts.

SPEAKER_00 13:55

Yeah. If this is all so magical, why isn't every single wealthy person putting every dime they have into these contracts? Like there has to be a catch.

SPEAKER_01 14:04

If we connect this to the bigger picture, annuities are just financial tools. They are not magic wands. And there are specific times when they are absolutely the wrong tool for the job.

SPEAKER_00 14:23

Let's shine a light on those blind spots because the guide does not pull punches here. What is the biggest risk that mass market advice completely misses?

SPEAKER_01 14:31

State guarantee limits are a massive one. When you put a million dollars in a bank account, you know, FDIC insurance covers you up to$250,000.

SPEAKER_00 14:39

Right. Everyone knows that.

SPEAKER_01 14:40

Well, annuities have a similar backstop called State Guarantee Associations. But most states strictly cap that protection at$250,000 to$500,000 per insurer.

SPEAKER_00 14:50

Wait, let me make sure I'm hearing this correctly. If a generic commission hungry advisor tells you to dump your entire million dollar nest egg into one insurance company and that institution goes under, the state might only protect$250,000. You could literally lose$750,000 just because you didn't split the purchase up.

SPEAKER_01 15:09

That is exactly the risk. High net worth strategies mandate splitting a large purchase across multiple highly rated carriers to ensure every dollar is protected by state limits. Mass market advisors often skip that step because, frankly, it's more paperwork for them.

SPEAKER_00 15:25

Unbelievable.

SPEAKER_01 15:26

Furthermore, you have to consider the opportunity cost. Locking a million dollars into a SBIA paying 6.5% provides incredible safety today. But historically, a well-diversified equity portfolio might return 9 or 10% over the long haul.

SPEAKER_00 15:41

Right. You are permanently trading that upside for the safety of the guarantee. You have to be completely at peace with sacrificing that potential growth.

SPEAKER_01 15:48

Exactly. And you also sacrifice liquidity. The guide is very clear that if you think you might need to pull out half a million dollars for a business opportunity or a medical emergency next year, an annuity is a terrible place for that cash.

SPEAKER_00 16:00

Because of the surrender charge.

SPEAKER_01 16:02

Right. Surrender charges can last anywhere from five to ten years, and you will pay massive penalties just to access your own money.

SPEAKER_00 16:08

Another critical blind spot, and this is a catastrophic estate planning flaw that often gets overlooked, is that annuities do not get a step up in basis at death.

SPEAKER_01 16:19

This is huge.

SPEAKER_00 16:19

Let's break that down for the listener because the step up in basis is one of the most powerful wealth transfer tools in existence. Normally, if you buy a stock for$100,000 and it grows to$500,000, you'd owe capital gains on that$400,000 a profit rate.

SPEAKER_01 16:35

Exactly. If you sold it while you were alive.

SPEAKER_00 16:37

Right. But if you die and leave that stock to your kids, the tax code allows the basis to step up. So your kids inherit it at the$500,000 value. Trevor Burrus, Jr.

SPEAKER_01 16:46

Meaning they could sell it the next day and pay zero capital gains tax.

SPEAKER_00 16:50

Right. The entire gain is just completely wiped out. But annuities.

SPEAKER_01 16:54

The annuities do not qualify for it. Wow. If you have an annuity with hundreds of thousands of dollars in deferred gains and you pass away, those gains pass directly to your beneficiaries, and they will be forced to pay ordinary income tax on every dollar of that growth.

SPEAKER_00 17:09

That is a staggering downside if your main goal is leaving money to your kids. For wealthy families whose entire estate plan relies on passing highly appreciated assets tax-free, throwing a huge chunk of wealth into an annuity disrupts that entire architecture.

SPEAKER_01 17:24

It does. And beyond the estate planning flaws, the guide warns strongly against legacy variable annuities. The older products that charge 2% to 3% in annual fees, mortality expenses, and rider costs. Those fees will just eat your high-rate returns alive.

SPEAKER_00 17:39

Which really brings us to the most important distinction in the entire Davies Wealth Management Guide, the fiduciary difference.

SPEAKER_01 17:46

You always have to look at how the person recommending the financial product is getting paid. Commission-based agents can make anywhere from 4% to 8% on an annuity sale.

SPEAKER_00 17:54

Wait, 4 to 8%. So on a$1 million premium.

SPEAKER_01 17:57

The agent sitting across the desk from you might be walking away with up to an$80,000 commission.

SPEAKER_00 18:02

Oh my God.

SPEAKER_01 18:03

Yeah. That creates a massive, undeniable conflict of interest. Are they recommending the product because it solves your sequence of returns risk or because it buys their next luxury car?

SPEAKER_00 18:12

It's impossible to know for sure when that much money is on the line.

SPEAKER_01 18:16

Which is why the guide stresses the absolute necessity of working with fee-based fiduciaries like Davies Wealth Management. A fiduciary is legally obligated to act in your best financial interest. And a fee-based model means they earn zero commissions on the product itself.

SPEAKER_00 18:32

That changes the dynamic completely.

SPEAKER_01 18:34

Totally. They evaluate the annuity based solely on whether it makes mathematical and strategic sense for your specific plan. And they will ensure you're only working with carriers that possess AM best A plus ratings. So you know the institution actually has the financial bedrock to honor its decades-long promises.

SPEAKER_00 18:52

Aaron Powell So what does this all mean? We started by talking about how the 2026 high-rate environment has completely transformed the math behind annuities, right? Taking them from ignored clunky products to incredibly powerful tools for high net worth investors. Yeah. We journeyed through the mechanics of MYGA ladders, generating tax equivalent yields that crush taxable bonds, to SBIAs creating bulletproof income floors that act as a bridge over turbulent market waters. We waded into the deep tax strategies, dodging IRA surcharges with careful LIFO management, wrapping alternative assets in PPVAs, and understanding the counterintuitive IRS math behind charitable trusts.

SPEAKER_01 19:29

It's a lot to process.

SPEAKER_00 19:31

It is. And most importantly, we confronted the blind spots, the catastrophic risk of exceeding state guarantee limits, the lack of a step-up in basis for your heirs, and the absolute necessity of demanding fiduciary, commission-free advice.

SPEAKER_01 19:46

Aaron Powell It is a highly complex landscape, but understanding the architecture behind it is incredibly empowering. You know, you don't have to have a$5 million portfolio to benefit from thinking like someone who does. Yeah. The core principles, minimizing tax drag, protecting aid sequence of returns risk, and demanding transparent, conflict-free advice. I mean, those apply to anyone trying to secure their financial future.

SPEAKER_00 20:08

Understanding how the wealthy protect their money genuinely makes you a sharper, more critical thinker about your own financial wellness. But before we wrap up this deep dive, I want to leave you with a macro thought to chew on. We've spent this entire time talking about the individual benefit. An annuity is essentially a contract where you transfer your personal financial risk over to a massive institution. But if this high-rate environment continues, and an entire generation of retiring baby boomers shifts trillions of dollars out of the dynamic, growth-driven stock market and locks that capital into these guaranteed institutional vaults, what does that do to the broader economy? Oh wow. Like how does that massive systemic shift of capital away from innovative companies and into fixed income institutional bonds change the financial ecosystem for everyone else?

SPEAKER_01 20:56

That is a fascinating macroeconomic question. And one that could honestly easily define the next decade of market dynamics and corporate innovation.

SPEAKER_00 21:05

Think about that massive capital shift the next time you hear someone mention interest rates on the news. Thank you for joining us as we unpack the strategies, the hidden mechanics, and the genuine risks of modern wealth protection. Keep questioning the consensus, keep exploring the details, and never settle for generic financial advice. We'll see you on the next deep dive.