Should a 70-year-old buy an annuity? Here’s what to know now.

Turning 70 is a major milestone, and for many, it brings a clearer focus on preserving income, simplifying finances and making sure retirement savings last, especially in today’s unusual economic landscape. With traditional pensions becoming less common, stock market volatility at the forefront of many retirees’ minds, and inflation ticking back up, the idea of locking in a guaranteed income stream becomes increasingly more appealing. 

An annuity can offer that, which is why these unique insurance products have become a useful tool for creating predictable retirement income. With an annuity, retirees can get reliable monthly payments for the entirety of their lives in return for a lump sum payment. That allows retirees to supplement their Social Security income, retirement savings and returns from other investments without having to return to work or put their retirement benefits at risk.

In turn, an annuity can be a smart addition to the right retirement portfolio. But is purchasing one at age 70 really the right move? That’s what we’ll examine below.

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Should a 70-year-old buy an annuity?

At age 70, the decision to purchase an annuity comes down to a range of factors, including your goals and your financial situation. While it might seem late to buy one, there are several reasons why purchasing an annuity at this age could be ideal, and there are also a few reasons why it may not be.

Why buying an annuity at age 70 could make sense

If you’re seeking guaranteed income you can’t outlive, an annuity offers just that. The older you are when you buy an immediate or deferred income annuity, the larger your monthly payments tend to be. That’s because annuities are essentially bets against the insurance company. If you live longer than their actuarial tables predict, you come out ahead. And, since insurers are factoring in fewer years of life expectancy when you buy at age 70, they pay more over a shorter period. 

For example, a 70-year-old who puts $100,000 into an immediate annuity today could receive significantly higher monthly payments than someone who did the same thing at age 65. And, a healthy 70-year-old woman might reasonably expect to live into her late 80s or beyond, meaning that not only would their payments be higher, but she could also potentially collect annuity payments for 15 to 20 years.

So, you might be an ideal candidate at age 70 if you’re in excellent health and longevity runs in your family. And, this could be an ideal time to purchase one since interest rates are still relatively high right now. That means fixed annuities, in particular, are offering stronger returns than they were just a few years ago. These market conditions can make it a more attractive time to lock in a payout rate.

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Why buying an annuity at age 70 might not be the best move

On the flip side, annuities often come with trade-offs. Once you hand over your money to the insurance company, it typically becomes illiquid. That means you won’t be able to access that lump sum if your needs change, unless you’ve chosen a specific type of annuity with liquidity features, which can be more expensive.

If you have significant health issues that suggest a shortened lifespan, buying at age 70 is risky, as you might not live long enough to recoup your initial investment, either. And, if leaving a legacy to heirs is important to you, an annuity may be problematic since most of your principal gets tied up with the insurance company.

The fees associated with annuities can also be substantial, particularly with variable or indexed products. So, if you purchase one at age 70, you have less time to overcome these costs through the potential returns. Or, if you have other reliable income sources like pensions or substantial Social Security benefits, you might not need the additional guaranteed income an annuity provides.

What’s the best age to buy an annuity at?

There’s no universal “best age” to buy an annuity. The optimal age varies depending on the annuity type and your circumstances, but there are some general guidelines worth considering. As noted above, purchasing an immediate annuity at a later age can be the optimal route. That’s because the monthly payments increase significantly as you age, as the insurance company expects to pay out for fewer years. 

However, deferred annuities often work better when purchased earlier. These products allow your money to grow tax-deferred for several years before you start taking income. Starting at 60 or 65 gives you more time for potential accumulation, though you’ll face penalties if you need to access the money before age 59½.

Many financial advisors suggest that the “sweet spot” for immediate annuities falls somewhere between ages 70 and 75. At this point, you’re likely already retired, have a clearer picture of your other income sources and can command relatively high monthly payments. You’re also old enough that longevity insurance becomes more valuable, but not so old that health concerns make the purchase questionable.

The bottom line

At age 70, an annuity can be a smart addition to your retirement strategy, but it shouldn’t be an impulse purchase. The decision hinges on your unique circumstances: your health, family longevity history, other income sources and how much guaranteed income you need.

Before making any commitment, shop around extensively, as annuity terms and fees vary dramatically between companies. And, once you hand over that lump sum, getting your principal back becomes difficult, so make sure you’re comfortable with the trade-offs in exchange for guaranteed lifetime income. For the right 70-year-old, though, an annuity can provide invaluable peace of mind during retirement’s most uncertain chapter.