Last Updated: January 2021
Annuities are offered in several forms and have helped individuals invest based on their unique needs and financial portfolios for over 200 years.
Annuities can be considered an additional retirement vehicle providing guaranteed income in the later years of life, and they can also be purchased at younger ages to be more aggressive in the market and offer more substantial returns for investors.
In this article, we will provide information to help you decide the best age for you to purchase an annuity vs other financial investments.
- What is the Best Age to Buy an Annuity?
- How Age Impacts Purchasing an Annuity
- Everyone’s Specific Financial Situation Will Be Different
- Always Speak to a Financial Advisor and Weigh Your Options
Annuities Are Boring And Can Be Confusing. Let’s Get To The Root Of It! Here are the key takeaways…
Annuities can be a great financial addition to your portfolio. Age, retirement timeline, and financial needs are different from person to person. Purchasing an annuity between the ages of 45-55 might be ideal, but everyone’s situation is different. Speak to a financial professional to help decide what would be best for your current situation.
What is the Best Age to Buy an Annuity?
Individuals who are considering adding an annuity to their financial portfolios might be curious as to when it makes the most sense.
More specifically, what is the best age to buy an annuity?
- The best age to purchase any annuity is going to be different for each individual investor. While many financial experts will agree that between the ages of 45-55 may be considered the most ideal, it does not necessarily mean that this age fits your financial plans and risk tolerance.
As you may be able to tell from the answer above, it is not exactly black and white, and there is no 100% definitive answer as to when the best time to buy an annuity may be.
However, based on which annuity is being purchased and your current situation, it is possible to narrow down the scope and pinpoint a more ideal time to purchase an annuity that can provide the benefits that you specifically need for your retirement years.
How Age Impacts Purchasing an Annuity
Now that we understand that it is challenging to laser in on that exact age to purchase an annuity let’s flip the script and discuss how age impacts annuity investing first.
This should help you decide the best age for you to purchase an annuity.
Just like any other financial investment, there are pros and cons of annuities. Here are two of the critical benefits that investors seek when purchasing annuities.
- The ability to compound tax-deferred interest.
- The ability to create a guaranteed income stream.
This guarantee of an income stream later in life when income is usually at its lowest and when many seniors live check to check can be a great financial investment.
The Sooner You Purchase An Annuity, the Better the Returns
In simple terms, an annuity can create a nice retirement safety net or “nest egg” if you will. When It comes to age, some of the oldest methods in the book still hold true when it comes to annuity investing. The sooner, the better is the first thing to understand.
Like any investment, the sooner you begin, the more time you have for compound interest to take effect, and the more risk you can take attempting to create more significant growth and a larger fund for your retirement years.
Therefore, financial experts typically agree that ages 45-55 can be a very ideal age to get the ball rolling and dip your toes into annuity investing.
Buying an Annuity at a Younger Age Can Protect Against Downturns
More importantly, when discussing the perks of purchasing an annuity at a younger age, you can bounce back from downturns in the market or downturns that may take place within other investments in your portfolio.
This can be critical to ensure you can retire at your desired age on schedule.
Let us assume that you had scheduled to retire in early 2020, and you were not one of the individuals who had time to allow their nest egg to grow substantially. 2020 was a rough year in just about every way you can look at it from a financial standpoint.
Clearly, if you had plans to be riding off into the sunset after your last days of work during these times, you likely would have had to change those plans and continue to work to make up for the heavy losses that have occurred.
However, if you were already 15-20 years into your annuity investing at this point and also had 5-10 years remaining before you are scheduled to draw any required minimum distributions (RMD’s), you would have time to allow the market to bounce back and restock your lost investment principal.
Comparing different options like annuities vs CDs with a financial expert is a good idea as well. Knowing all your options is critical to investing and can make or break your entire financial plan.
Investing in Later Years Also Has Benefits
Now, that does not necessarily mean that you need to begin at these younger ages with annuity investing.
Many individuals over the age of 59 will purchase lump sum immediate annuities that will provide guaranteed monthly income in their retirement years and also allow them to completely avoid any early withdrawal penalties that occur with all annuities that are cashed out before the age of 59.
The point here is simple. It entirely depends on your situation, risk tolerance, and your investment and retirement time horizon.
Everyone’s Specific Financial Situation Will Be Different
When it comes to annuity investing, not only will your financial situation differ from other individuals, but you also have varying levels of risk tolerance and different annuity types that can change the outlook for your investments.
For example, an individual asking “are annuities safe?” might be looking for guaranteed income for their retirement years. They need a low-risk way to invest their money like a fixed annuity. Fixed income annuities provide guaranteed income with an average 3% return.
On the flip side, a younger investor with extra income to invest may be more tempted to purchase a variable annuity that can have more upside and larger growth.
This is due to having the ability to save/invest for a longer period, rebound from down market years as discussed previously, and not have an immediate need for monthly income right out of the gates.
It is always going to depend on the specific individual and your financial situation and what your needs and desires are for your retirement years.
Always Speak to a Financial Advisor and Weigh Your Options
With all the various options for annuities that you can purchase and all the potential risks and rewards involved, it is always imperative to search and analyze the best choices with a professional.
While age 45-55 may be the expert’s opinion on a good age to purchase an annuity, that is not necessarily the best age for you. Plenty of factors can change this time horizon and ideal investing age relatively easily.
It is imperative to lay everything out on the table for an advisor to analyze and allow them to cover options with you that truly are tailored to your needs and risk tolerance. For example, you may want to compare annuities vs life insurance with your advisor to see which investment is best.
Are Annuities Right For You?
With all of the uncertainty in the world these days, annuities are a solid financial vehicle for individuals seeking guarantees and the ability to be certain that they will have a certain amount of monthly income streaming in during the most critical years of your life.
If you have not started investing yet and are new to annuities, now be the best time to begin comparing your options.
Always look for the annuities from a reputable provider and allow a financial professional to explain the risks, pros, and cons of annuity investing.
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