When Is the Best Time to Buy an Annuity?

You shouldn't shop for annuities at 100 miles per hour. Slow down and make a clear decision.
You shouldn't shop for annuities at 100 miles per hour. Slow down and make a clear decision. Getty Images

In the world of annuities, the $10,000 question is, “When is the best time to buy an annuity?”.

If you ask most agents, their answer will probably be “right now!”. That’s a predictable answer, obviously self-serving, and not correct. The answer is that it depends. It depends on whether you need an annuity or not. That’s not a cop out, and I am not trying to be politically correct; it's the truth.

The best time to buy an annuity really comes down to your specific situation, what you want the money to contractually do, and when you want those guarantees to happen.

So do you need an annuity?

Figure out Your Specific Situation First to Determine If Now Is the Time for an Annuity

Everyone’s situation is different, so there is no right or wrong time to implement an annuity strategy. For example, if you need an income stream to start right now and be guaranteed to pay for the rest of your and your wife’s life, then you need to probably buy a Single Premium Immediate Annuity (SPIA).  Interest rates, politics, the world economy, or what your know-it-all neighbor thinks about the financial situation is irrelevant when you need income.

Define What You Want the Money to Do for You

This is the primary question you have to ask yourself if you are considering an annuity.  Don’t let an agent just launch into their product of choice. They could be trying to sell enough policies to qualify for a sweet cruise, laptop or even a car.  Start with the financial solution you are trying to achieve, and then find an annuity strategy that will help you contractually solve for that goal.

  It’s really that simple, define what you need the money to do, then decide if an annuity does it. You might find out that an annuity is not what you need. That’s OK. You always want to base your decision on what the product will do, not what it might do.  Understand and buy the contractual realities, not some dream scenario created in an unlikely projected reality.

These projections most likely will never happen.

Decide When You Need the Guarantees to Start Paying You Income

This is another key question that you need to ask in addition to what you want the money to do.  Not only should you buy an annuity for the contractual guarantees, you need to know when you want those policy guarantees to begin paying income.

You Might Use Annuities to Solve for Guaranteed Income to Start at a Future Date 

For example, you might be planning your retirement income needs, and realize that you have an income gap that needs to be filled in 5 years.  Alternatively, you might be planning for that income to start in 5 years to combat possible future inflation. With income riders attached to deferred annuities, or longevity annuities (aka deferred income annuities) you can know to the penny what that contractual income guarantee will be 5 years from now.

You Might Be Looking for a Fixed Rate Product for a Specific Time Period

In that case, a fixed rate annuity (MYGA) would be an option similar to a CD.  You know the contractually guaranteed annual yield from day one on a Multi-Year Guaranteed Annuity.

So there really is no perfect or best time to buy an annuity, besides the right time for your situation.

Nobody can time interest rates or accurately project the world economy.  It all comes down to your situation and exactly what you want to achieve.  An annuity might not fit the parameters you have set in place, but an annuity transfer of risk strategy might provide the contractual guarantees you are looking for.  Just remember to start at your finish line to find the solution. You may find an annuity works for you. This exercise not only helps you define if an annuity will work in your portfolio, but you will develop a clear idea of where you are at financially and where you are going to be down the road. Everybody needs to develop personal financial clarity, whether they need an annuity or not.