Annuity Blog

When is the Right Time to Buy an Annuity?

Posted by: Anne Morrison | Mar 20, 2015

time to buy an annuity

Retirement planning needs to be done ahead of time, but the right time to purchase an annuity is dependent on a lot of factors. For some, it is ideal to get on board the contract now, while for others, the best time would be at a later date.

If you talk to agents and ask when the ideal time to purchase is, they would most likely say right now. However, don’t get easily swayed by this marketing ploy and look carefully at your own unique situation. Many agents are focused on selling you a product and getting commission from the sale; this is just reality.

Buying an annuity should work to your advantage and not anyone else’s. Here are factors you need to consider to know when the best time to buy an annuity is.

Needs

Financial-related decisions will always be influenced by your needs, and so does determining when to buy an annuity. Figure out how much income you need in retirement, and how an annuity can help meet this amount. Calculate the guarantees within the contract and see if it fits the amount needed to bridge the gap for certain needs in retirement.

Often, annuities are optimally used to cover daily living expenses in retirement. With that taken care of, you’ll have more flexibility and control over how you use the rest of your nest egg.

Age

Another important factor you need to consider is your age, because knowing when to buy an annuity is about figuring out when you need to tap into this income source. Moreover, certain types of annuities favor people of different ages.

If you are older and need the money in time for retirement, consider purchasing an annuity sooner rather than later. An immediate annuity allows you to begin receiving income within 12 months of closing, and this feature makes it attractive for near-retirees looking for steady income.

Meanwhile, if you are still years away from retiring, you can purchase a deferred annuity now if you want to grow your money. Deferred annuities allow your funds to compound over time, so that the income you receive later on can match the effects of inflation.

Financial Goals

You’re buying an annuity because there’s a financial goal you want to attain. Be clear on what you want your money to do. This will help you gauge whether it is the ideal time to purchase an annuity today or not.

More so, experts actually suggest going backwards. Begin from knowing the result you want to know where you need to start. Here are useful questions to ask:

  • What is the exact amount you need?
  • When do you need it?
  • How long do you need to receive income from an annuity?
  • How many people do you plan to cover with this income?
  • Do you need income only for yourself alone?
  • Are there other people relying on your annuity, such as your spouse or children?

Just like with any financial move, purchasing an annuity is also about the right timing, so take your time in considering the factors mentioned. It will not just help you know the ideal time to purchase an annuity, but it also helps you determine the most suitable type of annuity contract for your needs.

Image credit: via Flickr