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Which Is the Best Age To Buy Annuity?

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Best Age to Buy Annuity Plans
July 15, 2024

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Do you want to enjoy your current lifestyle even after your retirement? Then, you can start investing in an annuity plan to achieve your target. But do you know what the best age to buy an annuity is?

Right timing and planning are always important in every type of investment to get the best returns. With annuity plans, the type of plan you choose and when you want to start receiving its benefits determines the right age to invest.

To learn when to start investing in an annuity plan, read this blog carefully.

What Is an Annuity and How Does It Work?

An annuity plan builds a financial contract between you and an insurance company. The plan provides a regular income either immediately after maturity or later in the future (as per your policy terms). Usually, annuity plans provide long-term fixed payments after your retirement.  

There are two phases in every annuity plan:

1. Accumulation phase

2. Annuitisation phase.

During the accumulation phase, you have to contribute funds through periodic payments or in lump sum mode. The money accumulates until the annuitisation phase begins.

In the annuitisation phase, you start receiving payments from the insurance company. The payment can be immediate or deferred.

From immediate annuities, you can get the payment immediately in exchange for a lump sum deposit, while deferred annuities begin paying out at a specified age chosen by you.

When To Start Annuity Plans?

Annuity plans are often linked with post-retirement purposes. Therefore, it is not a wise option to start your annuity investment late. The best way is to start as soon as you become eligible for the investment, which is around 40 or 45 years (depending on the plan).

Starting an annuity plan as early as possible is always better. It allows you to create a regular stream of income for your retirement. If you have a substantial lump-sum amount in your savings account, you can invest it in an annuity plan.

Even if you don't have a large sum of money to invest, you can still start an annuity plan by making smaller and regular payments for a specific tenure. This allows you to build up your annuity corpus. You can then choose to receive the annuity payments immediately or at a later time.

Ultimately, the optimal time to start an annuity plan depends on your individual financial goals, risk tolerance, and retirement age. If you are unable to make a decision, you can consult with a financial advisor who can help you make decisions based on your income, risk profile, and future goals.

What are the Types of Annuities?

There are mainly two types of annuities available in India:

1. Immediate Annuity

The immediate annuity is a type of annuity where the annuity payments begin immediately after you pay a lump-sum investment. It means you will start receiving regular payments from the insurance company, generally on a monthly, quarterly, or annual basis.

Immediate annuities are the best option for retired persons who need a reliable source of income to cover their living expenses.

2. Deferred Annuity

A deferred annuity is a contractual arrangement with an insurance company where you initially build a corpus. It is then used to purchase an annuity plan upon retirement. This ensures that you receive regular payments at a predetermined date, typically for life, providing a reliable income stream for the rest of your life.

Deferred annuities can be a valuable tool for long-term retirement planning, as they provide a way to build up a reliable income stream for the future while allowing the funds to grow in the meantime.

The key difference between a deferred annuity and an immediate annuity is the timing of the payments. In a deferred annuity, the annuity payments commence at a predetermined date in the future, unlike an immediate annuity, where payments begin just after investment.

Factors Influencing the Best Age

The best age for an annuity plan depends on various factors. Here are some of the most important factors to consider:

  • Age-related Considerations

As you enter the retirement age (in your 50s or 60s), an annuity plan can provide a guaranteed income. An early start allows you to get more time for your investment to grow through compounding.

  • Financial Goals and Risk Tolerance

Your individual financial goals and risk tolerance are also important in determining the best time to start an annuity plan. If you're looking for a reliable and consistent source of retirement income, an annuity plan can provide a guaranteed lifetime income

  • Current Economic Conditions and Interest Rates

The current economic climate and interest rates can also impact the attractiveness of annuity plans. When interest rates are higher, annuity plans are more attractive as you can lock-in the higher rates for many years.

Ultimately, the optimal age to start an annuity plan depends on the specific situation of your life and you should discuss with a financial advisor to plan a retirement strategy by investing in annuity plans.

  • Pros and Cons of Buying Annuities at Different Ages

Follow this table to learn the pros and cons of buying annuities at different ages, which will help you determine the best age to buy an annuity:

Age

Pros

Cons

Early to Mid-Career (20s, 30s, 40s)

- More time for growth through compounding

- Can build a substantial retirement corpus over the long term

- Annuities may have higher fees compared to other investment options

- Funds are less accessible until retirement age

Nearing Retirement (50s, 60s)

- Provides a guaranteed income

- Can offer peace of mind as you can pay daily expenses more effectively

- Shorter time for investment growth compared to starting earlier

- Until retirement, the funds are less accessible

Retirement Age

- Immediate access to a reliable income stream

- Can help you to ensure a stable income during retirement years

- Less time for investment growth compared to starting earlier

- May have chances of lower payouts due to shorter life expectancy

How an Income Annuity Works?

An income annuity is a type of annuity that provides guaranteed income payments to you for a specified period or the rest of your life. Here is how an income annuity works:

1. Initial Investment: You need to invest a lump-sum amount or a series of payments to an insurance company to purchase the annuity plan.

2. Annuity Payments: In exchange for your initial investment, the insurance company agrees to make regular, periodic payments to you. These payments can be made monthly, quarterly, or annually, depending on the terms of the annuity contract.

3. Payment Duration: The annuity payments can be structured for a fixed period (for example, 10 or 20 years) or your lifetime, or even for the lifetimes of you and your spouse.

4. Guaranteed1 Income: The key feature of an income annuity is that it can provide a guarantee to you. It ensures a stable and predictable source of retirement income. This can be particularly valuable if you want to minimise the risk of depending only on your savings after retirement.

Conclusion

Annuity plans can be a valuable tool for retirement planning as it provides dependable income after retirement. Ultimately, the best time to buy an annuity plan depends on your financial goals, risk tolerance, and retirement age.

Starting an annuity plan early can help you achieve more long-term growth. Otherwise, if you wait until retirement to invest in an annuity plan, it can provide immediate access to an income source.

FAQs on Best Age to Buy Annuity

Q. What age should you purchase an annuity?

The best age to purchase an annuity can vary depending on your financial goals and retirement age. However, the experts suggest the best ages are typically between 50 and 75 years to purchase it.

Q. Should I buy an annuity in my 20s?

If your age is 20 years, you should not buy an annuity, as annuities tend to have higher fees than other investment options. However, purchasing an annuity in your 20s is a good option if you are an investor with a low-risk tolerance.

Q. Are annuities good for 30 year olds?

Annuities are generally not the best investment option at 30 years old. At this age, you may have other priorities such as savings, and debt repayment. It's generally a better option if you are near your retirement.

Q. Can I buy an annuity at age 75?

Yes, you can purchase an annuity at age 75, and it may be a suitable option for you. Many insurance companies set their maximum age limit between 75 and 95 years old. If you invest a lump sum amount in an annuity plan at this age, you can get assured income.

Q. What is the average age of annuity buyers?

Most financial advisors recommend buying annuity plans between 70 and 75 years of age. However, the minimum age is 18 years to be eligible to purchase an annuity plan.

Q. Are annuities good for a 50 year old?

Yer. Annuities are a good option for a 50-year-old person if you are near your retirement age. Particularly, the deferred annuity is a better option at this age as it allows you to get tax-deferred growth.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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1. Provided all due premiums have been paid and the policy is in force.

This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial advisor for any financial queries.

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