Is there an age limit when buying annuities?

CBS News

2 days ago

When it comes to planning for retirement in today's unusual economic landscape, many Americans are looking beyond the traditional options, like savings accounts and 401(k)s. With stock market volatility becoming a more common part of the economic landscape, more soon-to-be retirees are turning toward more reliable options, like annuities, instead. These unique retirement products are particularly appealing right now because they offer a way to incorporate a guaranteed income stream into your retirement portfolio, offering peace of mind in an unpredictable economy.
But annuities don't function like most other retirement tools, which can make them feel intimidating, especially when you're investing a hefty sum and start seeing numbers and terms you don't fully understand. And, one question that often pops up is whether your age limits your ability to buy an annuity, which is a fair concern. After all, these products are designed to provide income that lasts for the rest of your life, and the timing of your annuity purchase can significantly impact both how much you pay for an annuity and how much you receive in return.
So, are there age restrictions to consider when you're buying an annuity? And, if so, what should you know before purchasing this type of retirement tool?
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There generally isn't a strict age limit to buying an annuity. You can generally purchase one as long as the insurance company allows it, and there are no federal laws that cap the maximum age, either.
That said, individual insurers will often impose their own limits, which can vary based on the type of annuity. Many providers set a maximum age for immediate or fixed annuities (which start paying out right away) at between 80 and 85 years old. Variable and deferred annuities, which begin payments later, may have slightly higher age caps, or they may have none at all.
So why do insurers impose these limits on annuity purchases? The short answer is that it's largely about risk. The older the buyer, the shorter the period in which the company expects to make payments, which affects pricing and guarantees.
From a consumer standpoint, understanding these limits is crucial because waiting too long to buy an annuity could mean fewer options or higher costs. In some cases, insurers may also require additional medical underwriting for older purchasers to ensure the product is appropriate.
In addition to maximum age guidelines, there may be minimum age requirements. Most annuity products require buyers to be at least 18, for example, though some retirement-focused annuities align with tax-advantaged accounts like IRAs or 401(k)s and have restrictions based on those rules.
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There's no perfect age for buying an annuity. You should generally use your retirement strategy rather than your birthday to determine the timing of your purchase. However, certain age ranges do offer distinct advantages when purchasing an annuity.
For example, many financial advisors suggest considering annuities in your late 50s to mid-60s, especially if you're concerned about market volatility impacting your retirement savings. At this stage, you have enough time to benefit from potential growth in deferred annuities while still being young enough to qualify for the best rates and terms.
But purchasing an immediate annuity right around your full retirement age — typically 66 to 67 for most people — can provide you with an income stream that complements your Social Security benefits. At this age, it also makes sense to convert a portion of your retirement savings into guaranteed income, providing a solid foundation for your retirement budget.
That said, there can be advantages to waiting until your 70s or even early 80s to purchase an immediate annuity. Since these products are priced based on life expectancy, older purchasers often receive higher monthly payments. If you're in good health and have family longevity on your side, this could work in your favor.
Ultimately, the key is to try and balance the higher payout rates that come with age against the risk of potentially disqualifying yourself due to health issues or facing reduced product availability. It's also worth considering that the longer you wait, the fewer years you'll have to recoup your initial investment.
There isn't a hard-and-fast age limit for buying annuities, but the timing still matters. Most insurers accommodate buyers well into their 80s and sometimes beyond, particularly for immediate annuity products, but the optimal timing varies significantly based on your specific circumstances, health and financial goals.
So, rather than focusing solely on age restrictions, it could make more sense to consider whether an annuity aligns with your overall retirement strategy. Before you make any decisions, though, be sure you fully understand the type of annuity, the payout options and how your age affects the pricing and the guarantees, as those factors are a critical part of making the right decision for your finances.