What is the Best Age to Get an Annuity Fund?

(SPONSORED POST) Many people know an annuity fund is a long-term way to ensure financial health, but they may not know the right age to purchase one.

What is an Annuity?

Although many people have heard of an annuity, they may not completely understand how it works. An annuity is a contract issued by an insurance company between themselves and the purchaser.

It's designed to help the individual reach goals and offers lifetime income and protection. It can cover care costs and more and is a powerful financial tool for many considering their future and planning for retirement.

By definition, annuities are a transfer of risk contract, which you're not meant to break. Although annuities sound advanced and modern to some, they've been around for hundreds of years. They were popular during the depression as a result of the stock market volatility.

Types of Annuities

Annuities also come in various types today, unlike years past. They can help you gain capital through your investment efforts and offer guaranteed income.

You can choose to have the annuity provide you with an income stream for either your entire lifetime or for a certain predetermined time frame. There are usually two factors that determine the number of payments you'll receive.

• Your age at the time of purchase
• Your life expectancy

However, keep in mind that an annuity is only a part of an investment strategy and shouldn't be your sole source of income during those later years.

It's important to have a diverse strategy that considers and implements multiple options. However, an annuity is a solid investment in your future.

​The Best Age to Buy an Annuity

Although you can purchase an annuity at any age, generally, the consensus between financial advisors is that you should be between the ages of 45 and 55.

The reasoning behind this theory is that an older individual is more financially stable than a younger investor. Therefore, they can take more risks with their investments without is spelling disaster.

After the age of 59, individuals are beyond the 10% early withdrawal penalty time frame, so they may want to purchase an immediate annuity

Annuity Options

Before starting investing in an annuity, buyers should know they have three options to choose from now. Considerations must be made for age, savings, risk, and the amount of the returns.

The Fixed Annuity

If you're an older individual with only a few years to save up for retirement, you might consider this option.

The fixed annuity provides returns in the range of 3-10 percent and pays a guaranteed amount. These monthly income payouts are higher than other means such as a CD, typically 1-2 percent.

Variable Annuity

The insurance company places investments into accounts for stock purchases the variable annuity. They put the money in these accounts for bonds, money market funds, and stock and allow the investor to choose the level of risk they want to assume.

The variable annuity poses more risk than the fixed annuity, but the investor can minimize the risk via diversification.

Keep in mind that the payments fluctuate based on the performance of those investments and can be more than the fixed version. However, it's essential to know that you can lose your investment and principle.

Indexed Annuity

This option is a hybrid between the variable annuity and the fixed annuity. An indexed annuity depends on market performance, is capped on both ends.

Regardless of how the market performs, the investor's return is capped at a certain percentage upwards and downwards. This provides the potential for higher returns than that of a fixed annuity; however, it decreases the risk of losses to the investor. It's the best of both options.

Reasons to Invest in an Annuity

The prospects of retirement become more unclear with time. Now is a great time for those thinking of retirement to invest in multiple forms of financial security, including annuities.

Keep in mind that while the stock market has volatility, on average, it offers better returns than other methods of saving. Keep in mind that Americans are living longer and thus need to prepare for the potential of outliving their savings if they don't prepare accordingly.

The best course of action is to research each type of annuity's benefits and risks and choose the option that seems to provide the best returns vs. the ideal level of risk you're willing to take on during the investment period.

Purchasing Annuities

Investors wanting to purchase an annuity have a few options. They can go the traditional route and visit the company in person. This route is beneficial for those needing clarification or details about the process.

If you already know all the details of the annuity process and know which option you want to invest in, you can go the online route.

There are companies out there that can allow you to purchase them without going to a physical location. This is ideal for savvy investors or those who don't want to leave the comfort of their homes for the transaction.

If you're interested in buying annuities online, there are companies out there that handle this type of transaction for the ultimate convenience.

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