The Best Ages To Consider Buying Annuities

Annuities are an interesting financial product. They offer a contractual payout figure and operate in a way that's functionally similar to a life insurance policy. There are many types of annuities, and those planning for their retirement can ultimately deploy an annuity strategy to boost their retirement income through a few different avenues. Instead of providing a pool of resources that will grow over time and give you an account to draw from later, an annuity builds value (or imparts it in a single payment) that offers a set 'income' payment based on the terms of the contract. This makes annuities an ideal solution for planners who worry about cash flow problems, and those in the 40-70 age bracket. 

Annuities provide a simplified means of approaching retirement budgeting by giving you a monthly income based on preset conditions. The more you add to the account, the higher that payout rate will become. Used in tandem with your Social Security checks, or as a replacement for Social Security if you're someone who isn't eligible for benefits, annuity payments offer quality stability.

However, investing in an annuity isn't an easy decision. Since there are so many options available, it can be tricky to select the appropriate contract for your needs. Moreover, finding the best time to buy an annuity policy is equally challenging. Older workers might approach this as a sort of conversion from another retirement account into an annuity vehicle, while others will likely want to approach the savings tools as a more traditional, gradual investment.

When you're still in what might be considered prime working years as a professional seeking to maximize portfolio growth, variable annuities can be an important asset to bring into your portfolio. These investments allow you to place your capital into funds in much the same way you might invest your other retirement savings. 

With a few decades between your initial investment and the retirement date you have penciled into your calendar for the future, there's lots of room for your capital to blossom. This means you can continue investing in the retirement product and selecting funds that match your risk profile to (hopefully) increase the payout value that it delivers when you decide to begin taking income payments from the fund.

Naturally, there's an element of risk here, as is the case with any stock market or other type of variable investment. You'll gain inflated upside, but there's a potential to see your returns become muted if you select poorly growing assets or the market takes a considerable beating. As a result, this isn't the kind of annuity product that older Americans will want to place their money into. For one thing, time isn't exactly on your side as a near-retiree. In your 40s, however, you'll have plenty of time to grow the principal value of the investment in an effort to capitalize on expansive value addition that delivers a higher annuity income figure later on.

As you arrive in the decade of your life when retirement is likely to take place, an annuity can be a valuable purchase. Specifically, you'll want to consider fixed annuities. On the younger end of this age bracket, a standard fixed annuity allows you to contribute to the underlying premium while working toward your retirement date. This gives you the freedom to continue building the cash value gained from the investment product when you start taking income payments from the tool. 

With a fixed annuity, you short-circuit the market's volatility and instead contribute toward a growing, guaranteed rate that you will eventually start taking income distributions from. This allows for less guesswork and backup planning that's necessary with an annuity that might grow rapidly with the market or see its value lag during a market correction or even a lengthy bear trading period.

If you're toward the back end of the age grouping, a single premium immediate annuity might be a more useful approach. This allows for a single lump sum payment into the annuity product. Nearing 70, you'll have had plenty of time throughout your working life to contribute to other investment products, and after age 59 ½, you can take penalty-free distributions from retirement accounts to fund a shift into this type of retirement income product. If you've used a Roth account, a distribution of this type also won't impact your tax liability — an important thing to consider regardless of your work status.