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How to Buy an Annuity: Is It Possible to Time the Purchase?

Stan Haithcock
December 9, 2021
How to Buy an Annuity: Is It Possible to Time the Purchase?

Everyone asks me whether it is possible to time the purchase. Is there a sweet spot? Is there an arbitrage moment where it's the perfect time to buy an annuity of any type? Of course, everyone that's in the market, the stock market, or anything like that, you've been trained to try to time it. Can you do that with annuities? Can you do that with an annuity purchase?  

Let’s Talk About Timing

Is it possible to time the purchase with an annuity regardless of the annuity type? No. It's not. That's not a sales pitch. That's not me saying, well, you need to buy from me, and you need to buy right now because. No, it's not. Annuity companies have significant buildings for a reason. They had the giant logos on the plane for a reason. They're sponsoring sports stadiums for a reason. What's that reason? It is because they know when we're going to die.  

Property and casualty companies don't sponsor anything because they don't know when the hurricane will hit. Life insurance companies issue annuities. Life insurance companies know when we're going to die, and they price things accordingly. There's no sweet spot arbitrage moment; pound the table you should buy it now fire-sale moment. There's never an urgency to buy an annuity. The only urgency is to understand the annuity you're buying, however long that takes.

Let's talk about a few things from a timing standpoint. Let's look at multi-year guarantee annuities, the annuity industry version of a CD. Can you time that Stan, The Annuity Man, Americans Annuity agent®? No, you cannot. Nobody knows where interest rates are going to go. If you're out there, say, it’s tough to go up, Stan, and we all know it's essential to time they have to go up. I've been hearing that for five years now, and all I've seen is rates going down.

Will they eventually go up? I don't know. You don't know. Nobody knows, and the person that knows isn't telling anybody. They're just trading interest rates. Nobody knows. The best way to combat that is to ladder the purchase. In other words, if you have $300,000, then let's buy a three-year and a four-year and a five-year, and then you have money coming due at different intervals to catch rising rates hopefully.  

At the time of this blog, if you look at the 10-year treasury or the equivalent globally of 10-year treasury notes, the United States is still the highest. Hello. Could they go down? Yes. They could. Could they go to zero? Yes, they could. Could they go negative? Yes, they could. Could you go the way up? Yes, they could. The bottom line is, no one knows. With fixed-rate annuities, the best thing you can do is ladder the purchase and ladder it over time. That's the principle of protection.  

There's never an urgency to buy an annuity.

Lifetime Income

Let's talk about lifetime income. Stan, The Annuity Man, American annuity agent, can you time a lifetime income purchase? Let me give you an example. You already own an annuity with social security because social security is the best inflation annuity on the planet. When you decide to turn the income stream on with social security at age 65 or 70, you have to factor in the fact that at 70, the income is higher. Why? Because you're older, the older you are, the heart of the payment.  

It's that simple. Life expectancy drives the train. That doesn't mean you wait because if you bought it at 65, you have 60 months of payments instead of waiting till you turn it on at age 70. That's common sense. The same common sense applies to lifetime income annuities. There are four types: single premium immediate annuities, deferred income annuities, qualified longevity annuity contracts, and lifetime income riders.

Those are the four strategies for a lifetime income. Understand this, the longer you allow the annuity company to hold onto the money safe, you're deferring the payment. If you want the payment to start five years or seven years, the longer you let the annuity company hold onto the payment, the higher the payment will be, or the longer you let it cook, the more you're going to get in southern terms.  

Now or Later

Should you buy the immediate annuity now, or should you wait and buy the immediate annuity later? I don't know. There's no good answer to that, just bad sales pitches. You have to factor in the payments that you missed while you're waiting to buy it, or someone will say, should I buy the income writer now and know what my income streams are going to be in seven years, or should I just invest in seven years, buy an immediate annuity, which one's higher? Nobody can give you that answer. No one can run a lifetime income "with immediate annuity" because we don't know the life expectancy tables or interest rates.  

Remember, life expectancy drives the train and is the primary pricing mechanism. Interest rates play a secondary role. Getting back to the question, can I time purchase an annuity? The answer is no, and I just need you to believe that. With that being said, in that fact in place, how do I make a decision, Stan, The Annuity Man, America's annuity agent? Here's how you do it. You run the quote; you quote all carriers, you answer the two questions. What do you want the money to do, and when do you want those contractual guarantees to start? Then we look at the contractual guarantees, and if the guarantees fit your goals, you buy them.

Never forget to live in reality, not the dream®, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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