Should You Buy an Annuity at Age 60?

Does it make sense for you to buy an annuity at age 60? How about when in your 60s in general?

It really depends on the annuity and what it would do for you. An annuity should solve specific problems in your retirement plan and cover any gaps with its contractual guarantees.

Tens of millions of people depend on annuities and their guaranteed promises for retirement. While you may be considering an annuity while in your 60s, the ages of those who buy annuities tend to be across the board.

Some buy fixed-type annuities in their 40s so they can accumulate money alongside retirement accounts or an employer plan. Others use annuities for income in their 70s, or even later, so they have dependable guaranteed cash-flow. Several annuity buyers fall somewhere in between those age ranges.

Now, what situations might make sense to purchase an annuity in your 60-somethings?

Why Would Someone Buy an Annuity in Their 60s?

Buying an annuity in your 60s can be an optimal time for a variety of reasons. From a statistical perspective, you are closer to retirement at this point than you were earlier in life.

With their nearness to retirement, our 60s are when someone is in the retirement red zone, or that crucial period of 10 years before and into retirement.

Here, you might want to explore how you can protect some of the money you have accumulated by reducing your portfolio risk, if it’s right for your situation and savings progress.

An annuity can help counterbalance other types of risk in your assets with their guarantees for lifetime income, principal protection, predictable growth, long-term care, or death benefit proceeds.

Here are some reasons you might consider if it makes sense to buy an annuity when you are 60 or just in your 60s in general.

1. Diversifying Your Taxable Income Streams

No matter what, taxes are one of the few certainties in life that you can count on. According to the U.S. Census Bureau, the average retirement age in the U.S. for women is 63 and is 65 for men. This is an important timeline for taxes and other retirement concerns.

Once you start unwinding your full-time career, you will probably replace your income from career earnings with new income streams from your investments and savings. Taxes can take a big chunk out of your new income, especially if they are unplanned.

The good news is you can use annuities with other vehicles to pay you income that is tax-efficient and lets you have predictable monthly cash-flow.

If you buy a non-qualified annuity in your 60s with after-tax money, you can diversify the tax status of your retirement income streams and potentially reduce the taxability of your Social Security benefits.

Although annuity income is taxed as ordinary income (meaning that you will pay tax on this form of income at your top marginal bracket), non-qualified annuities return a portion of your principal with each payment you receive. As a result, this income stream can help in lowering your tax bracket.

With your financial professional’s help, you could also explore opportunities for Roth conversions. While that would mean that you pay taxes now on your money, the upside is your future income would be tax-free.

What’s more, you could wind up with more lifetime income throughout your retirement due to the tax-smart moves that you make now. Ask your financial professional about the potential advantages and disadvantages of this strategy.

2. Wanting to Retire Past Your 60s and Maximize Income

Say that you want to work until you are in your 70s. You might not be as concerned about running out of money in retirement as having a healthy income to do the things you enjoy.

As part of that goal, you might be looking for ways to maximize your lifetime income and stretch every retirement dollar that you have as much as possible. Besides Social Security, annuities are the only vehicle on the planet that can pay you a guaranteed lifetime income.

If you are looking for strategies to maximize your money, annuities might help you get more bang for your buck as they work with other holdings in your portfolio. One of the ways that they do this is with their income guarantees, and adding an annuity to your financial line-up in your 60s can be a powerful time for putting this benefit to work for you.     

Buying an annuity when you are 60 or so can give time for that annuity’s guaranteed income benefit to “grow.” Why? That way you have a larger guaranteed income payout being given to you when you retire in your 70s.

If this lifetime income-maximizing strategy is timed with waiting to claim your Social Security benefits, you can have a substantial amount of “permanent” income to rely on than if you had retired in earlier years.

If you are able to defer receiving Social Security until age 70, your benefit will be roughly 32% higher than what you would get if you decided to start receiving benefits at your full retirement age.

This extra income, combined with your annuity payout, could provide a hefty monthly income for the rest of your life.

3. Protecting Some Retirement Money from Market Risk

Both fixed annuities and fixed indexed annuities guarantee your principal so that you can have more peace of mind about your money. Your money can continue to grow while it is protected from the risk of market declines, as it’s no longer in the market and within the contractual safeguards of the annuity contract.

These contractual guarantees are backed by the cash reserves of the life insurance company, which is required by state law to have at least a dollar in reserves for every dollar of annuity premium that it holds.

If the insurer were to become insolvent, the financial safety net made up of other insurers would kick in. With that being said, life insurance companies have a solid record of staying strong in financially hard times.

4. Protecting Your Must-Have Money for Later Goals

Do you have any later-in-life goals, such as leaving some money to heirs? If you are considering an annuity in your 60s or later, an annuity can protect crucial monies for reaching later-year goals or maximizing the legacy that you provide to loved ones.

Of course, it’s important to balance these benefits with your need for liquid funds (and the ability to generate liquidity). In an annuity you have some liquidity, but not access to all of your money. Most insurers will let you withdraw up to 10% of your principal for free every year during the surrender charge period.

Your financial professional can help you explore this question and others when building a retirement strategy with annuities and other vehicles.

Annuities are good vehicles to leave wealth to heirs because they are inherently exempt from probate. They are one of the few vehicles in the financial marketplace today that can offer this inherent benefit.

What’s more, you and your heirs can also enjoy creditor protection for the money that you have inside annuity contracts.

The minus side is that there is no step-up in cost basis with annuities as there is with other assets such as stocks. In other words, your heirs will probably have some income tax due on their inherited amount.

Your financial professional can walk you through those scenarios and help you weigh the pros and cons.

5. Greater Tax Deferral

What if, in your 60s, you are catching up on savings goals? Or perhaps you want to supplement your current retirement savings.

Then you may want to put the power of “tax me later” to work for you so you can snowball your nest egg even more for retirement.

Annuities are unique in how they are treated in the IRS tax code. The money you place inside an annuity grows “tax deferred,” or in other words, you pay taxes on the withdrawals that you take out on the backend. This tax advantage allows your money to earn interest and have compounding growth over time, therefore supplementing the money you have inside your retirement accounts.

There isn’t a real advantage to using an annuity inside an IRA account for tax-deferred growth, as your IRA will already provide the benefit of tax deferral. But buying an annuity with after-tax money from personal savings, proceeds from a home sale, or other such dollars can let that money grow without a tax hit for a time.

This can be a valuable strategy for ramping up your retirement savings for some years in your 60s before you retire. Your financial professional can also help you with figuring out your tax picture on the backend when you start drawing down income from different sources.

Planning for Your Financial Security Now

The question of whether to buy an annuity at age 60 involves many factors. Do you want guaranteed income that you can count on for your entire retirement? Annuities are the only vehicle that can pay you a truly guaranteed lifetime income.

Do you want predictable growth for your money or want to protect your money for later-in-life goals? Fixed-type annuities can strengthen your chances of accomplishing these goals with their strong contractual guarantees.

You can also grow your retirement money even further by taking advantage of the tax deferral that annuities provide. And you can create tax-advantaged income streams for yourself in retirement by using these guaranteed contracts in tandem with other financial holdings.

But annuities also aren’t for everyone. They need to solve a particular issue in your financial plan. But when they are used properly, they can do a lot of good with their study contractual promises to you, the annuity owner.

Consult your financial professional for more information on annuities and whether they are right for you. If you are looking for someone to discuss your goals, situation, and help you find answers, many financial professionals are available to assist you at SafeMoney.com.

Use our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to explore a working relationship at no obligation. Should you need a personal referral, call us at 877.476.9723.