Buying An Annuity At 50 WORK
What age is too old or too young, et cetera? Let's start on the too young side. I get a lot of calls from people in their 20s and 30s, and 40s about annuities. Ironically, most of the calls, I guess tragically, are a better word; most of the calls someone's trying to sell that 20-year-old or 30-year-old or 40-year-old an annuity of any type. The first thing I say is, "how old are you? " and they say, "well, I'm 35, or I'm 37, or I'm 40" or whatever.
buying an annuity at 50
Here's the bottom line. If you're less than 50 years old, you really shouldn't be looking at annuities of any type. Let me give you the reasons why. Suppose you're looking at a lifetime income annuity like a deferred income annuity or a single premium immediate annuity or qualified longevity annuity contract or an income writer, for that matter, attached to an index annuity. Remember that the lifetime income stream is primarily based on your life expectancy when you take the payment.
Annuities for stock market growth should never be purchased for that. I know many variable annuity salesmen out there are yelling at the screen, but there are limitations on the choices within a variable annuity. Most of these variable annuities have high fees. If you're less than 50 years old, you have time for markets to be volatile, and then you can make up for any type of losses or volatility, etc. If you're less than 50 years old, you should never buy an annuity of any type.
Here's another reason. Our friends at the IRS say that if you take out money from an annuity, like a multi-year guaranteed annuity or a fixed index annuity, if you take money out before you're 59 and a half, there's a 10 percent penalty. Once again, if you're that young, you should not be buying an annuity of any type. Now, there are specific situations and asterisks that we deal with where there's a special needs situation that we need to create a lifetime income stream for, or there's a specific child or grandchild or someone, but those are one-offs.
Now, let's talk about being too old. Annuities can be issued in some types, not all types. As far out as age 90, that didn't mean a nine-year-old should be buying them. Some product types have cutoffs at age 85. That doesn't mean you need to be buying but what I would like for you to do is if you're 80 or above, then we need to talk. I need to know why you are considering an annuity. What are you trying to solve contractually? What's the goal of the asset? Don't just go to the lousy chicken dinner seminar because they are giving away food. Always tell you if you're going to do that, swallow the food, not the sales pitch.
I need not because I don't think you're sharp as a tech because you are; you are probably more sharp than I'm. I need to understand the suitability. I need to understand the appropriateness. I need to understand what you're trying to achieve. Now it could be legacy; it could be long-term care, confinement care. It could be moral protection, or you might need a lifetime income stream to fill in that income floor gap that you might have. But I want to prevent anyone 80 and above is you not buying the sales pitch dream.
You're not just being sold something. I'm trying to prevent someone from convincing you that the too good to be genuine product exists because it does. If it sounds too good to be confirmed with annuities, it is every single time without exception. If you're 80 and above, I need to talk with you. We might decide that this specific annuity type fits, or you don't need annuities at all. Don't listen to the sales pitches that you're getting out there.
We talked about 50 or less; we talked about 80 or older. Let's talk about 50-80. The people who are inside, that it is appropriate for them. That doesn't mean you need to buy one. Again, you need to make sure that you have specific goals contractually that you want that money that you're thinking about an annuity type to do, and we need to talk. Just remember 50 and 80, 50 and below, you're too young, 80 and above, we need to talk.
Yes, you may invest in an annuity at any age. There are usually few or no lower age restrictions. On the other hand, purchases of annuities do have specific minimum and maximum ages. These limits are different for each annuity type and product.
The best age to buy an annuity depends on your situation and financial goals. Generally, you are recommended to purchase an annuity when you are close to retirement age and have already taken advantage of pre-tax retirement savings opportunities, such as an IRA or 401(k).
However, buying an annuity at an earlier age may offer fewer benefits than waiting until you are closer to retirement because you would not be able to take advantage of the tax-deferred growth offered by an annuity. Additionally, an annuity purchased earlier could potentially have more associated fees. Therefore, it is essential to consider your individual retirement goals and needs when deciding when to purchase an annuity.
Many insurance firms will allow you to purchase an immediate annuity until you reach age 100. Many individuals who acquire immediate annuities fall within the age range of 70 to 80. Because the payout is based more on actuarial predictions of life expectancy at that age, the older someone is when they buy an immediate annuity, the greater their monthly payment will be from the annuity company.
The minimum and maximum age restrictions for fixed index annuities vary. A fixed index annuity may be purchased until you are 90 years old. The typical age restriction is around 80. Many insurance companies will not allow you to purchase an annuity with an income rider until you are 50 or older.
You generally can buy a multi-year guarantee annuity or fixed annuity until you are 90 years old. However, many purchasers of multi-year guarantee annuities are in their 50s to seventies, as with other deferred annuities.
As it turns out, it often does make sense to accept the illiquidity and fees at a younger age, and, in fact, more people are doing just that. Many financial planners have noticed that a growing number of people are buying annuities in the early 50s and a Gallup survey of owners of individual annuity contracts has found that nearly four in 10 annuity owners buy their first annuity when they are younger than 50.
Income annuities can provide the confidence that you will have guaranteed retirement income for life or a set period of time*. Many clients purchase income annuities to help cover their essential expenses, as defined by them, in retirement. Use this income annuity calculator to get an annuity income estimate in just a few steps.
Designed to ensure we are operating at the highest possible service level, there is currently a $100,000 minimum for all annuity contracts offered through Schwab. This does not impact additional purchase payments into existing annuity contracts. For more information, please contact an annuity specialist at 866-663-5241.
More from Personal Finance:Here are tips for buying a home in a cooling marketNew York City helps kick off 'wave of pay transparency legislation'Consumer watchdog is upping efforts to crack down on 'junk fees' at banks
Fixed-rate deferred annuities work like a certificate of deposit offered by a bank. Insurers guarantee a rate of return over a set period, maybe three or five years. At the end of the term, buyers can get their money back, roll it into another annuity or convert their money into an income stream.
"Am I worried about the client running out of money? If yes, that's when I think about an annuity," said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners, based in Jacksonville, Florida.
I can see why this arrangement might be appealing. For one thing, you would know going into retirement that you'll have a definite, steady flow of cash you can count on beyond what you'll collect from Social Security regardless of what's going on in the financial markets when your paychecks stop. Today, for example, a 60-year-old man who invests $100,000 in a deferred income annuity would receive about $660 a month for life starting at age 65; a 60-year-old woman would get roughly $620 a month; and, a 60-year-old couple (man and woman) would collect about $535 a month as long as either of them is alive.
Knowing that you've locked in some guaranteed income may also allow you to enjoy your post-career life more, as research shows that people who have pension-like income tend to be happier in retirement. For that matter, since the money you've put into the annuity is insulated from stock market gyrations, you may even feel comfortable enough to tilt the rest of your portfolio a bit more toward stocks in order to boost long-term returns and better maintain your standard of living later in retirement.
And in fact, there's no need to rush the decision. Research by Morningstar head of retirement research David Blanchett shows that you give up very little of the benefit of an annuity as long as you buy within 10 years of retiring. That should give you plenty of time to become more familiar with the pros and cons of annuities, get a handle on your expenses and decide whether you need extra guaranteed income in addition to what Social Security will provide.
In short, rather than committing now to a deferred income annuity that will start in five years, I think you should consider waiting until you're at the threshold of retirement and then decide whether to lock-in lifetime income with an immediate annuity as part of your overall retirement income plan. If you're still unsure, you can revisit the issue again every year or so as you gain more clarity about your retirement spending.
If you do eventually decide to "annuitize" a portion of your savings, don't feel you have to do so all at once. By moving your money into annuities gradually -- say, buying two or three smaller annuities over the course of a few years rather than dumping in all your money at once -- you'll reduce the chance of investing all your money when interest rates (and thus annuity payments) are at a low. Before you buy, you'll also want to check out these five tips for choosing the right annuity. 041b061a72