Initially, pensions had one purpose: to convert a lump sum capital into a stream of income, for life or for a limited time. They were designed for people retiring or otherwise in need of a stable, guaranteed monthly income. Can you buy an annuity at any age?
Safe income stream
For most retirees, the overriding problem concerns the safe future income stream.
The best age to get a pension depends on many factors, including the person’s current situation and investment, risk tolerance, longevity prospects, and expected retirement needs. The best age to get a pension is to be able to optimize your benefits for your individual needs.
The best age to buy a pension
While the best age to buy a deferred annuity will be different for each annuity investor, financial planners generally agree that between the ages of 45 and 55 is optimal. Combined with additional retirement savings measures, increased interest on deferred income tax and a guarantee of lifetime income can provide a significant retirement nest.
Why young people turn to pensions
The trend for younger buyers is likely to continue because the stock market is still following the path of one of the longest bull market in history. Five factors explain this phenomenon:
Increased public awareness of the importance of retirement planning, especially in view of growing doubts about the solvency of the social security system, say financial planners and others.
People live longer and are looking for vehicles that provide a lifelong income stream, like most annuities. Gallup’s survey showed an increase in the number of pension owners by 9 percentage points who claimed that lifetime income was the main reason for buying the pension.
People are increasingly warming up to the fact that annuities are not taxed until they are paid out. According to the Gallup study, 70 percent of annuity owners say they have allocated more money to their retirement than if they had not benefited from tax benefits on pensions.
Two busts on the stock exchange in the last 15 years – the first in 2000–2002 and the second in 2007–2009. Fewer people are ready to face the risk of becoming a participant in the third crash.
For some people, the benefits of buying an annuity earlier outweigh the disadvantage and higher fees. Many annuities have accumulations – a generous annual increase in the income base, as long as payment is deferred for up to 20 years – that increase maintenance allowances. In addition, deferred income pensions, which do not pay benefits until much later, allow people to receive much higher benefits for less. In principle, younger people can leave this money much longer than older ones.
Factors to consider
For someone with a fairly healthy lifestyle and good family genes, starting a pension at a later age is definitely the best option.
Of course, waiting for a later age assumes that you are still working or have other sources of income, such as a 401 (k) or retirement plan, as well as social security.
It is generally not advisable to combine all or even most of your assets into an annuity because, after converting capital into income, it belongs to an insurance company.