Broker Check

Who Should Have an Annuity?

Not every investment idea or tool is for everyone, in the same way you wouldn’t turn a screw with a hammer or wear pajamas to an important meeting. An annuity is for people who need its specific functions and are able to reasonably afford it. I will go over those details in the following sections.

What Is An Annuity’s Purpose?

As discussed in a previous article, an annuity is primarily designed to assure yourself that you will have an income at a later point of your life, based on an insurance company’s guarantee to pay you that income. Another point of view to look through, is that of life insurance. Where life insurance is meant to leave an estate for your heirs to inherit, an annuity is for you to enjoy that wealth and estate while you are still alive.

To this end, if you are not at all worried about having enough income in your future, then annuity is likely not ideal for you. For those who are concerned about their ability to fund their future, it is worth to at least consider this investment tool.

How Old Should I Be To Consider An Annuity?

Some companies may limit the age at which someone can purchase an annuity, but technically there is no limit to when an individual can purchase and begin paying into an annuity. This financial tool is usually purchased by those approaching retirement, and is funded by a sizable sum of money they have built up over the years to assure they will have income for their remaining years. Younger individuals typically do not have the ability to afford annuity deposits, and are generally focused more on wealth building than on preserving what they currently have.

While age is certainly a factor in deciding whether an annuity is a good investment choice for you, your personal goals and current financial situation are also important to consider.

How Much Money Should Be Set Aside?

In short, the money set aside for an annuity is whatever will be enough money to afford you the lifestyle you want to have in your retirement, but will not impact your current standard of living today. Money for bills and rent today, and “rainy day” or emergency money, is not money that should be placed into an annuity.

Nor should you ignore other possible sources of income in the future such as social security, pensions, 401(k)s, and IRAs.

How much you personally place into an annuity should be based on the how much you want to have as an income in the future, minus income from other sources, and adjusting that future value to its present day value. A full article on the maths of this process will be presented later, so you can have an idea on what you may need to invest to reach your financial goals.

As always, do speak with a professional before coming to any major investment decisions.


What About Annuity Riders?

Most riders change the math on how the value of the annuity is calculated, or may offer more income based on certain events occurring in your life. In regards to these types of riders, consider whether or not you personally would need, can afford, and would feel more secure having those riders. You can read up on more details in my article about riders here.

One type of rider I feel is worth noting, is guaranteed benefits for variable annuities. While your investments may be subject to market risk, you are guaranteed to have your annuity equal at least as much as you originally put into it, even if your investments go to 0. The guaranteed benefits can be applied to your received income, or even as a death benefit so that you can pass your money onto your heirs if there is still paid-in value in the annuity.


If an annuity sounds interesting to you, or you have any more questions, give me a call at 203-956-0289. You can also send me an e-mail to Hope to hear from you soon!

DISCLAIMER:  Investors should consider the investment objectives, risks and charges and expenses of the variable annuity carefully before investing. An investment in a variable annuity involves investment risk, including possible loss of principal. Variable annuities are designed for long-term investing. The contract, when redeemed, may be worth more or less than the total amount invested. Variable annuities are subject to insurance-related charges including mortality and expense charges, administrative fees, and the expenses associated with the underlying sub-accounts. The prospectus contains this and other information about the variable annuity.