Where annuities are concerned, many individuals who are not knowledgeable of this type of retirement investment and will naturally have lots of questions. What is the difference between an annuity and some other type of retirement investment? Now that there are traditional and Roth IRA’s as well as 401(k) plans, do annuities still make good sense? These are two of the primary questions but another one is “when should I purchase annuities?”
You can compare the answer to this in similar fashion concerning the issue of when you should or shouldn’t buy stocks. You need the wisdom that only comes from doing some serious research about annuities so that you can determine when the time is right for purchasing them based on your financial expectations for retirement. There are several types of annuities such as:
- fixed annuities
- immediate annuities
- indexed and/or CD annuities
- variable annuities
So you should educate yourself as to the different types available, not only to figure out which one will be appropriate for you, but to decide on when you should purchase them.
Typically, the time for purchasing annuities comes about when an investor begins to focus more on income and safety during their retirement years versus growth or earnings yield. The window of opportunity normally occurs about 10 to 15 years prior to when you are planning on retiring. That window widens at the time you retire and then begins to steadily close thereafter.
When is the best time to buy?
Despite the fact that this is a generalization where annuities are concerned, you should still familiarize yourself with the different types listed above. As was previously mentioned, the time to purchase any of these annuities will depend on timing. Here is what we are talking about where timing and type of annuity is concerned:
Fixed annuities – since these are typically a form of fixed income investment, surrender fees will be a standard feature of these annuities, especially when they are the deferred fixed types. Characteristically, you want to purchase these 10 to 15 years prior to when you plan to retire.
Immediate annuities – as the name implies, the time to purchase these is now. In other words, the time to purchase immediate annuities is during the months surrounding you pending retirement.
Indexed and/or CD annuities – typically, these are purchased at anytime during a person’s financial life cycle. However, they are best suited for long-term investing so you should consider getting started with these years ahead of the standard retirement age. These annuities allow the investor to enjoy the gains that occur in the stock market without suffering from losing cycles.
Variable annuities – these are an excellent choice for gaining tax deferrals outside of another retirement plan such as a 401(k) plan or IRA. These types of annuities are not normally a good fit for younger investors as they benefit those individuals who are closer to retirement age. Variable annuities help the investor to preserve these tax deferral options.