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When Should I Buy an Annuity?

If you’re entering retirement, an annuity, with AnnuityAdvantage.com, might be the best option for you. The trick here is to analyze where you are in relation to retirement and how the type of annuity you choose can affect your overall plans. In this blog, we’re relating some advice regarding when you should buy an annuity. Though no financial advice works for everyone, you can use this as a starting point to plan your retirement. Continue reading to learn more about when you should buy an annuity.

How Do I Know If an Annuity Is Right for Me?

You should consider an annuity after you max out other tax-advantaged retirement investment vehicles, such as 401(k) plans and IRAs. If you have additional money to set aside, an annuity’s tax-free growth might make sense, especially if you find yourself in a high-income tax bracket.

Annuities have drawbacks and you must be willing to put away the money for a long period. If you make a withdrawal within the first 5-7 years, you might also be required to pay surrender charges that can be upwards of 7% of your income. Annuities frequently charge other high fees as well, usually including an initial commission that can be up to 10% of your investment.

If you purchase a variable annuity, ongoing investment management and other fees often amount to 2-3%. These fees can be complex and unclear and insurance agents and other agents will sell these products on the positive features they provide while downplaying their potential drawbacks. When choosing an annuity, you should carefully review the annuity plan first.

Before investing, you should compare that fee structure with no-load mutual funds, which give no sales commission or surrender charge. These also impose average annual expenses of less than 0.5% or about 1.5%. You should also consider that the earnings to withdraw from an annuity will be taxed as normal income. The maximum income tax rate today is 39.6%.

When Is the Best Age to Buy an Annuity?

Any Age

Multi-year guaranteed annuities might be an option for people of any age. These can beat out the interest earned on something like a CD.

Ages 30 to 44

If you’re younger, you might want to consider other financial products while planning your retirement. The money earned in your 30s and 40s might be better suited to put into retirement investments with greater risk and a potentially higher payoff.

Ages 45 to 58

People from ages 40-60 can benefit from annuity buying strategies aimed to accumulate value before retirement. If you’re thinking about moving over qualified money, from accounts such as 401(k)s and IRAs, this is an excellent strategy.

Ages 59 and Above

Withdrawal penalties expire when you turn 59 years and six months and buyers in this age group are likely to benefit from buying a lifetime annuity for lifetime income and tax deferment.

Ages 70 to 75

From ages, 70-75 might be the best time to start an income annuity because it maximizes your payout. Deferred income annuities typically only require five to ten percent of your savings and it can pay out later in life.

Questions to Think About Before Buying an Annuity

Annuities can provide you with a guaranteed income, but they carry both pros and cons. When purchasing an annuity, it’s important to shop for various products. It’s also important to understand what the best type of annuity is for you. You should consider when you plan to use your income and what you’re buying as you search for an annuity. The following questions offer some insight into what you can ask to ensure your annuity fits your needs.

When Will You Need Your Annuity Money?

One of the most important questions you can ask yourself is when you need the money from the annuity. Buying a single premium annuity with a lump sum payment can generate income right away while a deferred annuity will provide you with money later.

How Much Will the Annuity Cost?

The type of annuity you choose will determine the cost. Applying add-ons and extras known as riders will also affect the price. You should make sure to ask about any commissions or fees that can be included as well.

What’s Your Life Expectancy?

Your lifespan will influence several factors on the return of your annuity. You can consider health and gender, and how those affect life expectancy as well. If you are healthy and your family has a history of living longer, you should choose an annuity with a longer payout. If your life expectancy is shorter, you should consider whether your payout is too little.

What Are the Risks?

Figuring out whether an annuity income stream will fail to keep up with inflation is one of the most important things to consider while choosing your annuity. You should also consider the limited access you will have to your money and growth if you exchange income from an annuity.

Will the Annuity Work with Your Other Income?

Consider your other retirement income, such as social security, government, or private pensions, 401(k) plans, IRAs, and other retirement savings plans. You can think about how these will offset the risks that annuities present regarding inflation and life expectancy. You will also need to consider how an annuity will positively affect the chance you outlive your retirement savings.

Bottom Line

Choosing your annuity depends on the stage of your life. It can always be a helpful retirement vehicle but your age will change the type of annuity you should buy. You should also consider your retirement plan before deciding on an annuity. Plans shift frequently and whether an annuity is right for you is a personal decision.

Having a trusted annuity agent by your side is the best way to ensure you make a confident decision about your annuity. These professionals will be able to guide you through the process so you make an informed decision.

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Shazam Khan

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Shazam Khan

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