Originally, annuities had one purpose: to convert a lump sum of capital into a stream of income, for life or for a certain time period. They were designed for people who were retiring or otherwise needed a fixed, guaranteed monthly income. Today, there are various types of annuities that can be used to accumulate capital through investment in addition to providing a guaranteed income.
A Secure Income Stream
For most retirees, the overriding concern is for a secure income stream for the future. The best age at which to get an annuity depends on a number of factors, including the person’s current circumstances and investments, risk tolerance, longevity prospects, and expected income needs in retirement. The best age to get an annuity is when you are able to optimize its benefits for your individual needs.
As people live longer and rely more heavily on their own capital, the notion of converting a portion of that capital into a guaranteed income stream has its appeal. Income annuities were designed for that purpose. When you buy an income annuity, you enter into a contract with a life insurance company in which the insurer agrees to make fixed monthly income payments in exchange for a lump sum of money.
The payments are guaranteed for your lifetime or for a specified number of years. The payout is a bit less for a lifetime annuity because it adds a degree of uncertainty.