Annuities are a popular way to get the best investment return and protect yourself for the future. But few people truly understand an annuity, much less how to choose one. They can be a very complex product for those who are not familiar with them. Annuities can be a safe and secure investment if used correctly and purchased at the right age.
The best age to purchase an annuity is dependent on your situation, goals and income requirements. With interest rates inreasing by the Bank of Canada and the unpredictabibility of the stock markets, annuities are becoming more and more popular as retirees look to secure more of their income in retirement. There are a variety of decisions you need to make before purchasing one.
Is There an Optimal Time To Buy an Annuity?
The answer to this question is dependent on a number of different factors. For example. if the money that you are using to purchase an annuity is invested in the markets and is currently at a loss, you may want to wait for your funds to rebound before purchasing an annuity if you do not require income immediately.
There really isn’t such thing as “the best time” to buy an annuity — it depends on many factors, including how old you are, how much money you need each year, how your assets are currently invested and whether or not you have other sources of income (just to name a few).
Although annuites are becoming a very popular retirement savings tool, esepcially with interest rates increasing, they may not be the right option for everyone. While they have advantages, such as guaranteed retirement income, you may not require guaranteed income because you are receiving it from another source already (e.g. employer pension). You will definitely want to consult with a professional (we can help) if you are looking at purchasing an annuity. You will want to consider your age, the different types of annuities available, how long you need income for, how much income you need and more.
Basically, the optimal age to purchase an annuity is dependent on your situation, your goals and income needs. Someone may require annuity income to commence at age 65 where as someone may not need it until 71 when they convert their RRSP to a RRIF. You will need to dig deep into your financial situation and understand all of your sources of income, how they are taxed, how long they last and if they are guaranteed for life or not.
Annuity Types For Your Age
There are two main types of annuities: life and term certain. Life annuities pay you an income for as long as you live, while term certain annuities offer guaranteed payments for a specific period of time (e.g. ten years).
Any Age
Life annuities are typically good choices for people who want guaranteed payments for the rest of their lives, no matter how long that may be. If you’re not sure how long you’ll need the money or if you want to protect yourself against inflation, then a life annuity may be right for you.
Life annuities are definitely more common than term certain annuities mainly because they provide a guaranteed income for your entire life whereas a term certain annuity is only providing income for a period of time. Different age groups have different income needs so you will have to fully understand your situation before purchasing an annuity.
Age 30 to 44
If you’re aged 30 through 44 and want guaranteed lifetime payments, consider purchasing a life annuity instead of a term certain annuity.
Age 45 to 58
If you’re 45 through 58 years old and are still working, you may want to wait until you are closer to retirement before purchasing an annuity. It might be beneficial to continue to grow your savings so you are able maximize your annuity payout in retirement. A well-informed broker should be able to help guide you toward malking this decision based on your current age, income, net worth, etc.
Age 59 and Above
This is a very common age group to purchase an annuity as you are switching into your retirement years (if not already) and have a better idea of what your retirement income is looking like. It might be wise to lock-in a portion of your investments into an annuity to guarantee a larger portion of your income in retirement.
Age 70 to 75
Once you reach age 70 or 75, you must consider your options before making any decisions concerning purchasing an annuity. You should compare term certain annuities and life annuities to determine which option would be best for your situation. We are more than happy to help with this.
When Will You Need the Money?
Understanding when and how much money you will need at certain points of your retirement will definitely aid in determining what type of annuity to purchase and for how much. You may want to consider a joint life annuity where both yourself and your spouse are covered and payments are guaranteed until the 2nd death. Again, it really depends on your situation and goals to help determine what type of annuity to purchase, when it should start and how much it should provide for income.
If you are worried about your income in retirement not being sufficient enough to provide for your life, you may definitely want to consider adding an annuity to your retirement portfolio.
How Much Will It Cost?
The cost of an annuity depends on your age, gender, premium purchase amount, additional benefits/riders and other factors. The longer you expect to live, the more expensive an annuity will be because more payments will be made over time. Females also generally live longer so they will usually have a higher payout when compared to males.
You can see some sample illustrations here which are kept updated consistently, as well as some general quotes by clicking here. You should contact us directly for a customzied quote.
What’s Your Life Expectancy?
When considering life annuities, it’s important to know your life expectancy. Suppose your health is poor or other reasons you think your lifespan might be shortened. In that case, you should consider an impaired annuity. An impaired annuity is designed to provide you with a higher income if you have a shortened life expectancy due to an illness and/or disability.
For More Information
As with most financial decisions, there is no ideal time for everyone to purchase an annuity. There are plenty of things to consider and questions you will have to ask yourself before making a move. By analyzing those aspects of your personal finances, you can decide on the right time for your life. Please feel free to reach out to us if you have any questions or if you are already ready to move forward.