When Is the Right Time To Buy An Annuity?

Annuities are a type of insurance where the insured person or annuitant is guaranteed to receive a regular pension until his/her death. The annuity amount can be disbursed monthly, quarterly, or annually as per the choice of the annuitant.

While annuities are flexible in offering various choices to the annuitant in terms of different annuity types and options, many people can be at loss to understand when is the right time to consider buying an annuity.

However, a small questionnaire or checklist can help in clearing the cloud over the timing of buying an annuity-

The 5-PointChecklist

  1. Eligibility Criteria

Start by knowing the eligibility criteria for buying annuities. For instance, most reputed insurance firms keep the minimum age limit as 45 years to buy annuity plans.

  1. Portfolio Diversification

Your personal finance portfolio should have the right mix of risk and safety in terms of investments. Therefore, have a look at your portfolio and ask the following questions.

  • Is your portfolio has too much exposure to the stock market?
  • Are most of your funds parked in the bank term deposits?
  • Do you belong to the salaried class with a limited income source?
  • Are you already a part of any scheme that can provide you adequate pension after you retire?

If you have answered most of the questions above in the affirmative, except the last question, then it might be the right time to think about annuities.

  1. Retirement Age

Calculate how much time is left for your retirement. Retirement is the phase of life when you will stop receiving a regular salary, but you will still need a regular source of income to sustain your lifestyle.

Therefore, if you are getting closer to your retirement age, you must work on financially securing your retirement through a regular pension, and annuities are proven to be better options to secure such pensions.

  1. Safety of Capital

If you are a risk-averse person who can’t afford to lose your hard-earned money on financial misadventures, then you might like safer avenues to park your money.

Some common characteristics of safe investment options are

  • They guarantee the safety of the principal.
  • The rate of return is stable and fixed at the beginning of the investment.
  • Such investments are unaffected by market volatilities.
  • They can provide a safety cushion against any bad performing investments in your finances.

If you are planning to build such a safety net around your investment portfolio, then it might be the right time for you to consider buying an annuity plan.

  1. Liquidity

It is a fact that your liquidity can get affected by buying the annuity plans as the money is locked in for a long duration. Furthermore, annuity plans are non-refundable. However, this might work as blessings in disguise as you are unlikely to exhaust your fund on unnecessary expenses accidentally.

Therefore, you can consider buying such plans if you are not worried about a lack of liquidity in your personal finances.

Make Wise Choices

Considering the rising inflation and the ever-decreasing bank interest rates, you might consider buying annuity plans as early as possible. However, each individual can have different financial goals and outlooks toward retirement planning.

Therefore, it is advisable to carefully consider the factors discussed herein and take the final decision accordingly.