How to Determine the Best Age to Buy an Annuity
When it comes to planning for retirement, some experts are sure to recommend an annuity, while others strongly advise against it . An annuity is designed to provide a guaranteed income for life (pros) in exchange for a significant lump sum payment (cons). Annuities can provide a reliable source of income in retirement, but if you die too early, you may not get your money’s worth. Compared to other tax-advantaged savings mechanisms, an annuity is not as simple as “ Start Saving ASAP!” »
At what age is it better to buy an annuity?
Determining the optimal age to purchase an annuity is an important consideration because it can affect the income you receive. Here are some tips on how to choose the best age to buy an annuity.
Consider your life expectancy
The longer you plan to live, the more potential benefit you can receive from a guaranteed lifetime income in the form of an annuity. If you buy an annuity too early, you may not get the full return on your investment if you die earlier than expected. Most experts recommend waiting until at least age 65 to purchase an annuity to better ensure you live long enough to receive a steady stream of income for many years to come.
Delay until full retirement age for Social Security
If you plan to use Social Security benefits in retirement, wait to purchase an annuity until you reach your full retirement age, based on the year you were born. Currently, for most people this is 66 or 67 years of age. Waiting will allow you to generate Social Security income, which you can then include when determining how much annuity income you’ll need to supplement. Buying an annuity earlier results in less lifetime income.
Increase your monthly payment
The older you are when you purchase the annuity, the higher the monthly payout will be because insurance companies base payouts on your life expectancy. Although most people retire around age 65, each year you wait to buy an annuity increases your monthly income. Maximize your payout by waiting at least 70 years, ideally 70-75, to purchase an annuity.
Consider health and family history
Your personal health and family medical history should be considered when purchasing an annuity. If you have chronic health problems or a family history of a short life expectancy, you may want to purchase a product earlier than age 70 or 75. Relatively healthy people with a good family history may be able to delay repayments even further to maximize their monthly benefit.
Conclusion
With the right strategy, an annuity can provide peace of mind with stable payments for the rest of your life. In general, for a person leading a fairly healthy lifestyle, the best option would be to start an annuity at a later age. If you’re young, it’s best to continue focusing on more traditional, tax-advantaged investments.
As always, you should consult with a retirement planning professional. It is worth investing in a financial advisor who can analyze your finances, expected retirement lifestyle and life expectancy to provide professional advice on the best age range to purchase an annuity. Be sure to familiarize yourself with the difference between fee-based and fee-only advisors , as some financial advisors may not have your best interests at heart. After all, when it comes to finding the right financial planner, the last thing you want is to get scammed .