What is the best age to buy an annuity at?

Retirement planning often feels like trying to hit a moving target. Just when you think you’ve figured out how much you need to save, inflation shifts the goalposts, market volatility throws you off balance and suddenly you’re wondering if your Social Security benefits will be enough to cover any of your expenses during retirement. These types of issues are part of why more people are turning to annuities to lock down a reliable retirement income stream, one that guarantees you won’t outlive your money. 

However, the timing of when you buy an annuity can make or break the benefits. While it might seem like waiting until later in life would guarantee the biggest annuity payout, that strategy doesn’t always work, and neither does the flip side of that coin. Buying an annuity too early could lock you into lower returns and limit the growth potential, after all, while waiting too long can mean you miss out on years of steady income that could have supplemented Social Security or retirement savings.

So, how do you know when to pull the trigger? Let’s break down how your age impacts annuity payouts and what factors should guide your decision.

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What is the best age to buy an annuity at?

It’s important to understand that the “best” age to purchase an annuity varies from one person to the next, as the right timing depends heavily on your financial goals in retirement. In general, though, annuity payouts are higher for older buyers because insurance companies use life expectancy to calculate payments. That means a 75-year-old will likely receive a larger monthly payout than a 65-year-old who invests the same amount, simply because they’re expected to draw on the annuity for fewer years.

But waiting to purchase an annuity isn’t always the ideal approach. Many financial advisors recommend buying an annuity between the ages of 60 and 70. Purchasing during this window can help you avoid market risks while ensuring you still get significant payouts over time. Remember, though, that there are numerous types of annuities, and while it may make sense to purchase a fixed annuity between the ages of 60 and 70, the rules can differ for other annuity options. 

For example, deferred annuities grow tax-deferred until you start withdrawing funds, and buying this type of annuity earlier — let’s say in your 50s — gives your money more time to grow. However, this strategy requires patience and some financial flexibility, as you won’t see any immediate income benefits. Or, if you’re leaning toward an immediate annuity to supplement your Social Security with guaranteed monthly payments, waiting until you’re in your late 60s or early 70s to buy one often provides the highest payout ratio. 

That said, your health and life expectancy are also critical factors to consider during the process. If you’re in excellent health and come from a family with a history of longevity, locking in an annuity earlier could ensure more years of income.

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How to decide when to buy an annuity

If you’re trying to time your annuity purchase correctly, it may benefit you to think about how an annuity fits into your overall financial picture rather than focusing on a particular age. Ask yourself:

• Do you need income soon or later? If you’re about to retire and are concerned about covering essential expenses, purchasing an immediate annuity in your early to mid-60s may be appropriate.
• How’s your health? If you’re in poor health or have a shorter life expectancy, waiting to buy an annuity at an older age may not be worth it since you may not live long enough to fully benefit from the payments.
• What’s your risk tolerance? If market volatility concerns you, purchasing an annuity earlier could give you peace of mind by reassuring you that you won’t outlive your savings.
• What other assets do you have? If most of your retirement savings are in 401(k)s or IRAs, you may not need an annuity right away. But if you have a significant portion of your portfolio in cash or low-yield investments, an annuity could boost your income.

It’s also worth considering laddering annuities, which is a strategy where you purchase multiple annuities at different times and rates to help balance payouts and flexibility. This allows you to hedge against locking all your money in at one particular rate.

The bottom line

There’s no universal answer to the question about the best age to buy an annuity. For many people, purchasing between ages 60 and 70 strikes a good balance between payout size and retirement income needs, but your health, lifestyle and financial situation, as well as the type of annuity you’re planning to purchase, will ultimately determine what’s right for you.

If you’re considering an annuity, it may benefit you to work with a financial advisor who understands your goals. They can help you evaluate whether buying now or waiting makes the most sense for your retirement plan. Timing isn’t everything, but with annuities, it can make a significant difference in how much income you receive.