Annuity Buying Guide: Who Should Consider Purchasing This August

The current economic climate may present a unique opportunity for certain individuals to consider purchasing an annuity for retirement. However, it's not a one-size-fits-all solution. Annuities, which promise regular income for life in exchange for a lump sum, can be a valuable tool for the right person at the right time. But for others, they may lock up capital that could be better used elsewhere or create unnecessary complexity in a financial plan.

Who Should Consider an Annuity Now?

1. Near-Retirees Who Want to Lock In High Rates Now

Fixed and immediate annuities are directly tied to interest rates, which are currently at elevated levels due to the Federal Reserve’s sustained high-rate environment. If you're within a few years of retirement, this could be an ideal time to purchase an annuity to lock in higher monthly income for life. For example, a 65-year-old who buys a lifetime immediate annuity now could receive several hundred dollars more per month than someone who purchased the same product a few years ago when rates were near record lows.

2. Risk-Averse Seniors Who Prioritize Certainty

Many retirees have seen their 401(k) balances fluctuate dramatically in recent years. For those who prefer guaranteed income over the potential for higher returns, an annuity can provide the stability they need. Fixed annuities, in particular, offer guaranteed returns and are not subject to market swings, making them a reassuring option for those who cannot afford a major downturn in their later years.

3. People Without a Pension Looking for Lifetime Income

With pensions becoming increasingly rare, many retirees are left without a steady monthly paycheck. A lifetime annuity can serve as a personal pension, providing predictable income for the rest of your life. This can be especially beneficial for singles or couples who don’t have heirs to leave assets to, or for those who want the security of knowing their basic expenses will always be covered.

Who Should Avoid Buying an Annuity This August?

1. People Who May Need Liquidity Soon

Annuities can tie up your money for long periods. If you anticipate needing access to those funds for a major expense—such as a home purchase, medical costs, or helping a family member—an annuity could be a poor choice. Early withdrawals often come with steep surrender charges and tax penalties, and once your money is annuitized, it's typically locked in for good.

2. Younger Investors with Longer Time Horizons

If you're still decades away from retirement, an annuity is probably not your best bet. Younger investors are usually better off focusing on tax-advantaged retirement accounts like 401(k)s and IRAs, where they can invest more aggressively and benefit from compound growth over time. Annuities prioritize safety and income over growth, which makes them more suitable for later in life.

3. Anyone Carrying High-Rate Debt

Before considering an annuity, it's crucial to pay off high-rate debt, such as credit card balances or personal loans. Locking money into an annuity earning 4% to 6% annually while carrying credit card debt with rates in the 20% range makes little financial sense. Paying off debt first can free up monthly cash flow and offer a guaranteed return that often beats what you'd get from an annuity.

The Bottom Line

Annuities can offer stability, predictability, and peace of mind, especially in uncertain times. However, whether now is the right time to buy one depends on your personal circumstances, not just market trends. If you're nearing retirement, don't have a pension, or prioritize guaranteed income, this August could be an ideal time to consider locking in an annuity. On the other hand, if you're young, need flexibility, or haven't finished paying off high-rate debt, it may be worth exploring other options.

While the right annuity at the right time can help round out your retirement plan, the wrong one could leave you with regrets. Always consider your financial goals, risk tolerance, and long-term needs before making a decision.