Last Updated on Apr 26, 2021 by James W

You can find advice recommending signing up for an annuity anywhere between 40 and 75. The right age for getting an annuity will depend on a number of factors. Let’s address some of the issues you need to consider to determine when you should get an annuity.

The Rate of Return

The rate of return will determine how much money you’ll have to live off of. With a fixed rate annuity, you have a lower rate of return, but the money may last longer. The question is whether or not you’ll be able to pay the bills in twenty years due to inflation. If you choose a variable rate or indexed annuity, this is less of a concern, though this does increase the complexity of the annuity contract. Learn more about annuity rates here. Balance the risk with the greater potential reward, and you may be able to retire sooner rather than later if you average a higher interest rate. In this case, you can get an annuity now and then “turn it on”, collecting the revenue stream. 

The Fees the Annuity Charges

On the other hand, the rate of return will be offset by the fees you have to pay. Choosing an annuity with higher fees will eat into the returns, regardless of the interest rate. Some annuities have tons of hidden fees that dramatically reduce the payouts. You’ll be hit with a surrender charge any time you take money out of the account, but you could pay double if you have to borrow against the annuity in a structured settlement. This is why you should have significant liquid savings outside of your annuity, so you can pay for medical bills and car repairs. A side benefit of having a larger emergency fund is that you could delay collecting the annuity for another few months. This might increase the rate of return, because the money had more time to grow.

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Your Health

A surprising number of people are forced to retire due to health reasons years before they planned on retiring. That’s why you should learn more about annuities before you’re suddenly forced to figure out how you’re going to pay the bills. Another factor to consider is your mental acuity. An annuity contract is a legal contract. You cannot legally sign an annuity contract if you are not mentally competent. This is why the annuity contract must be in place before you’re diagnosed with dementia or left incapacitated by a stroke. If your health is declining, you should get an annuity now so that you have it in place when you’re no longer able to work or even make decisions for yourself.

How Much You Can Contribute

You can’t live off the income from the annuity if it doesn’t generate enough income for you to live on. The best age to get an annuity will thus depend on when you can contribute money. For example, some people sign up for annuities when they roll over a 401K or pension plan lump sum into the annuity. They can then contribute more money to it, or they can simply let the money grow. This explains why some people set up annuities at 45 they don’t plan on touching until they’re 65. Note that you can generally contribute more money to the annuity over time.

It would be wise to set up an annuity as you approach your peak earning years so that you can contribute as much as possible to the annuity. And know that you can contribute to most annuities in addition to whatever you put in your tax-advantaged retirement accounts.

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