Key Takeaways
- Those aged 50 to 70 are typically best positioned to buy annuities, but the reasons to do so vary by age group.
- Legally, you must be 18 to buy an annuity. Many annuity providers set their own minimum age limit of 50 and maximum of somewhere between 75 and 95 years old.
- People who are nearing retirement or newly retired purchase the majority of annuities.
- Deferred annuities are popular among pre-retirement investors seeking tax-deferred growth, while retirees desiring a secure income stream favor immediate annuities.
The best time to buy an annuity ultimately depends on your financial goals. The type of annuity you’re interested in and how soon you want your payments to start are also important factors to consider based on your age. Many financial advisors suggest 70 to 75 as the best age to start taking annuity payments.
Joe Liekweg, a licensed agent at Insuractive, told Annuity.org,“ It really kind of depends on the annuity investor, but I’d say that sweet spot is anywhere from 45 to 70 years old.”
The “typical” annuity customer is 66 years old.
Your proximity to retirement and income needs from the annuity will influence your annuity choice, with deferred annuities being more suitable for those with time on their side and immediate annuities for those seeking instant income.
In general, the younger you are, the less likely it is that annuities make the most sense for your needs versus other alternatives to annuities.
Best Annuity Types for Different Ages
- Late 40s – 50s
Variable Annuities: The ideal age to buy a variable annuity is when you’re in your late 40s or 50s. Variable annuities accumulate value based on the performance of underlying investments. Because they are tied to market performance, variable annuities have a lot of growth potential but also come with the risk that you might not get the returns you want. As with all market exposure, the longer you hold the investments in your variable annuity before converting it to income, the more you reduce the risk of your portfolio losing value. - 50s – Early 60s
Fixed Index Annuities: Fixed index annuities credit a fixed interest rate along with the potential for more gains based on the performance of a stock market index like the S&P 500. The returns on a fixed index annuity aren’t as predictable as a fixed annuity, and it may take some time to ride out market fluctuations and get the most value out of the annuity before you convert it. Fixed index annuities can also provide a very large stream of guaranteed income if an income rider is purchased with the contract. - 59 – 70
Fixed Annuities: With a fixed annuity, your premium grows at a guaranteed rate before converting to income payments. Fixed deferred annuities are ideal for customers between the ages of 59 and 70. At this age, you’ll likely have some time before you need income to let your savings grow, but you might feel that you are too close to retirement to take a chance on more unpredictable accumulation methods. - 70 – 75
Single Premium Immediate Annuities (SPIAs): The best age to start an annuity, like an immediate annuity, is typically between 70 and 75. Some financial advisors refer to this as the “age 75 rule.” This age range allows for the maximum payout and immediate income to support your retirement.
These are simply examples of different types of annuities to consider at different stages of life.
“In some cases, it can make sense to buy an annuity in your 40s, while in other cases, it can be a perfectly valid strategy to buy an annuity at 75 or even older,” Certified Financial Planner™ professional Matt Frankel told Annuity.org. “It all depends on your situation, goals and risk tolerance, so the best move is to consult with a financial planner who can evaluate your options.”
Age makes a big difference on annuity payouts. An older person in their 70s will have a much higher payout versus someone in their 60s. That said, if someone wants to purchase an annuity at age 60 and begin receiving income 10 years later at age 70, then the income benefit can be substantial. The compound growth effect makes a big difference. A rule-of-thumb is that if you don’t need the income now, take advantage of an income rider that will provide a high roll-up rate and withdrawal rate for a much larger income in the future.
John Stevenson, CFFOwner and Advisor at Stevenson Retirement SolutionsJohn Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he’s ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.
Are There Age Restrictions on Annuity Purchases?
Legally, you must be at least 18 years old to buy an annuity. However, annuity providers often set age minimums and/or maximums that customers must fall between to purchase an annuity.
Some companies might not want to sell to customers younger than 50, according to Anthony Martin, founder and CEO of Choice Mutual Insurance Group.
“While there are annuity products that younger people can buy, it’s best to look for alternatives to grow your money. The best age to buy an annuity is when you’re in your 70s because that often allows you to maximize the payout,” Martin theorized.
Most annuity providers also establish an upper age limit, typically ranging between 75 and 95. Most times, you can wait until you’re 95 years old before you must annuitize your contract. Plus, the IRS sets its own age restriction by fining those who withdraw from an annuity before turning 59 ½ with a 10% early withdrawal penalty.
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FAQs About the Best Age To Buy an Annuity
In general, buying an annuity makes the most sense when you are in your 60s or 70s. This is when you are a few years out from retirement or are recently retired. However, the type of annuity you’re considering and your financial goals also factor into the decision.
You might consider an annuity alternative if you are young with a relatively high risk tolerance, or if you already have a steady, guaranteed stream of income that covers your expected retirement expenses. This might include sufficient Social Security or pension benefits.
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