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What is the Best Age to Buy An Annuity?

What is an Annuity and How Does it Work

Annuities can be a great way to secure your financial future in retirement. But what is the best age to buy an annuity? Is there a “right” time to purchase an annuity, or is it something that you can always adjust depending on your individual needs? There’s no one-size-fits-all answer to the question of when is the best time to buy an annuity. But, there are some things to think about when making your decision. Age, health, and finances are all factors that can influence whether an annuity is a good option for you. In this post, we’ll take a look at these and other factors you should consider when making this important decision. So whether you’re just starting to plan for retirement or are already retired, read on for some useful tips on when to buy an annuity.

What to consider when deciding if an annuity is right for you

When you’re trying to decide when is the best time to buy an annuity, it’s important to consider the following factors:

Overall state of health and lifestyle

One of the simplest forms of annuities is a fixed income annuity that is guaranteed for life. In these cases, the amount you receive every month depends on how long the insurance company expects you to live, and this is directly related to your overall health and lifestyle.

The longer you’re expected to live, the lower your monthly payments will be and vice versa. Therefore, since good health and a healthy lifestyle can affect your life expectancy, then it’ll impact the optimum age at which to get an annuity. Consequently, healthier people will likely benefit from waiting if they want to optimize their monthly payments.

How much income you expect to receive from your annuitized funds

One of the most important things to consider when deciding when is the best time to buy an annuity is how much income you expect to receive from your annuitized funds. In short, for a given investment, the more you anticipate receiving each month, the more you’ll have to wait to get an immediate annuity. On the other hand, if you plan on purchasing a deferred annuity, perhaps one with a guaranteed interest rate, then it would be the opposite. In that case, you’ll want to purchase the annuity sooner and annuitize it later to let the money grow through the power of compound interests.

Additional sources of income

An annuity is unlikely to be the only source of income during retirement since you may be withdrawing from your 401(k) or you may be receiving payments from a pension plan. In those cases, you probably don’t need your annuity payments to cover all your living expenses, just a part of them. In other words, additional sources of income reduce the income you’re likely to need from an annuity. For the same reasons explained above, this could allow you to purchase an annuity earlier rather than later.


The last item on our list that you want to look into when deciding the right time to purchase an annuity is inflation. If you’re purchasing a fixed annuity, inflation will eat into the value of your payments as time goes by. If you purchase your annuity too early on, by the time you reach the age when you’re likely to need the income the most, inflation may have devalued your annuity making payments insufficient to cover your expenses. In other words, you’ll be getting less than what you expected or than what you need.

By now, you can probably tell that the right age to buy an annuity depends on the particular type of annuity you have in mind. Some annuities will work well for almost any age, while others will be best as an end-of-life investment to ensure you don’t outlive your savings. Therefore, I’ve put together a shortlist of the best time to buy some of the most popular types of annuities.

The best age to buy an immediate fixed income annuity

Choosing when to buy a fixed income annuity is about balancing how much money you’re willing to invest, how much income you expect to earn, and for how long. Most financial advisors agree that buying a fixed income annuity right after retirement is not a good idea since you’ll have to spread payments across 15 to 20 years. This means that you’ll either have to make a huge investment to secure large enough payments, or you’ll have to settle for a lower income.

Most financial advisors agree that purchasing a fixed lifetime annuity at age 70 to 75 is the best way to maximize payments without tying too much of your savings into the annuity.

The best age for a deferred fixed income annuity

In the case of a deferred annuity, you put a lump sum upfront and let it grow over time until you annuitize the full amount to turn it into income. In this case, buying the annuity is more like investing, although it’s one that yields less than other forms of investing.

Because of this, deferred annuities are generally not the best choice for younger individuals in their 20s or 30s since they can usually cope with more risky investments that produce higher yields. Additionally, if you’re 30 or 35, you may not be keen on locking up all your savings for the next couple of decades since you may be interested in starting a business or making a down payment for a house or a car. They are, however, a good choice for people in their mid-40s, especially those who are already settled down and are thinking more seriously about their golden years.

The best age for a variable or indexed annuity

Variable annuities offer both the benefits and the risks of market exposure. In this case, annuity payments fluctuate as a function of market performance which means that they may be higher than fixed annuities, but it also means that they could be lower. Also, these annuities expose your principal to the market, which means that you could suffer dramatic losses.

As a result, variable annuities are best suited for investors who are less averse to risk but that want to take a shot at getting more bang for their buck. Early retirees aged 59 and a half can benefit from this type of annuity while avoiding early withdrawal penalty fees.

The best age to buy a Multi-Year Guaranteed Annuity

Contrary to the other types of annuities, Multi-Year Guaranteed Annuities or MYGAs are a safe bet at almost any age. These annuities allow you to lock in a guaranteed fixed interest rate on your investment for up to 10 years. In other words, the issuing insurance company assumes the market risk and ensures your funds will grow tax-deferred at a fixed rate that is usually more competitive than a certificate of deposit (CD).

The bottom line

When it comes to the best age to buy an annuity, it’s a “no one size fits all” situation. Overall, annuities can be a good choice for people of any age. However, it depends on the type of annuity and several other factors. Things like lifestyle, state of health, inflation, and whether or not you’re receiving an old-age pension or have other sources of income could affect when you’ll need that extra retirement income most.

Although each individual investor’s situation will be different, in general terms, immediate lifetime fixed annuities are best for retired investors in their mid-70s. Deferred fixed income annuities are better for people in their 40s. Variable annuities, on the other hand, are good for younger investors who are not risk-averse. Furthermore, MYGAs are a good choice for investors of any age, particularly those who plan to invest in a CD. Even so, it’s always a good idea to seek the counsel of a financial advisor. They’ll help you sift through the many available options. Only then can you be confident in making the right decision.

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