When Is the Best Time to Buy an Annuity?
I don't have a watch. I have an iPhone that I looked down at. But you asked, 'What's the best time to buy an annuity?' There's no good answer to that question, just bad sales pitches. Now we're going to go deeper than that. You can say, "Well, that's not what I was looking for." I understand that. I will go into that question from the standpoint of interest rates and what you're trying to solve.
They Have Big Buildings for a Reason
Let's dig into the topic of when's the best time to buy an annuity. Now, if you ask an agent or an advisor who needs to make a car payment, they're going to say you need to do it right now. Understand this, if you leave with one thing, leave with this. There's never, ever, ever an urgency to buy an annuity ever. It's a contract. Take your time and decide on your terms and timeframe because you're going to own that contract. So, when is the best time to buy an annuity? I have no clue. You know an annuity is a contract; it's a transfer of risk. It all started way back in Roman times, sold in this country for hundreds of years. But no one has the timing, and the reason that annuity companies have the big buildings is they know the life insurance companies that issue annuity contracts and when we're going to die. It's hard to time and beat them. There's no arbitrage, no sweet spot, no timing, and no pound-the-table situation that says this is the time to buy an annuity. If anyone knew that, it would be Stanley, The Annuity Man. No one else in the country is licensed in all 50 states. I would call everybody simultaneously, send one email blast and say It's time. And if anyone ever does that, delete the email. No one knows when it's time.
Let me give you a story. A guy called me recently and said, "You know Stan, The Annuity Man. I'm trying to determine if I want to buy an Immediate Annuity." We ran the quotes for him. We had a discussion, sent the book, and sent him some of the YouTube videos I did on Single Premium Immediate Annuities. He comes back and says, "I think I'm going to wait until interest rates move." I said, "Okay, let me give you a non-sales pitch answer to that," Because that seems logical, I'm assuming to you out there, nod your head, that you're going to wait until interest rates rise.
First of all, with a lifetime income stream payment with any annuity, any type of annuity for a lifetime income stream, the primary pricing mechanism is your life expectancy when you take the payment. If it's joint with someone's life expectancies, plural, at the time you take the payment, interest rates play a secondary role. That doesn't make sense to you because you're an investor and have been in this stock market, interest rates, and the treasury. I get it. Listen, let me repeat it. Life expectancy drives the pricing train for income guarantees with annuities. It's just that simple.
Getting back to this guy's thought about timing interest rates, I said, "Well, you can do that. Let's just say you don't buy the Single Premium Immediate Annuity today, waiting for interest rates to rise. In two years from now, they will rise, okay?" He goes, "Okay." Here's the scenario. And this isn't the sales pitch. It's just reality. There's something to think about, proving my point that you can't time it and can't beat the insurance companies. If he waits two years, let's say interest rates don't rise, payments will be higher anyway. Why? Because he's older. But let's say that interest rates rise a little bit. Payment's going to be higher because it's a combination. Life expectancy driving the train and interest rates. But then I blew his mind, and I could hear it go, poof, when I told him this. So, if you wait to buy two years from now, you have to factor in all the payments that you missed for those 24 months while you're trying to time interest rates, and then you're going to have to factor in your break-even point after you bought it two years from now. That's common sense. Annuities are math, and annuities are contracts. What happened at the end of the day? Of course, he was a little bit miffed that I came at him that strong factually, but we concluded that he still didn't feel comfortable putting all his money in now because he thought 'rates were low,' whatever that means. So, what did he do? He put half the money in that he was planning on now, and he would try to time the rates later, even though I told him he couldn't. But he understood that he really couldn't time it, but he was going to try anyway, but he reached that middle point. That's pretty much the answer to can you time it.
Now, let's talk about fixed rates. Can you time a Multi-Year Guarantee Annuity, a fixed-rate annuity like a CD? No, you can't do that either. There's no way to time it. The only thing I tell people when you buy Fixed Rate Annuities is to ladder the maturity. Let's say you have $300,000. You say, "Stan, I want to protect the principal. I want a guaranteed interest rate. Just like CDs, I don't want to pay any fees. I don't want to pay any taxes on the interest. It's in the non-IRA account. Which is the best rate to go with Stan The Annuity Man?" There's no good answer—just bad sales pitches. We hedge and buy $100,000 and three-year maturity, $100,000 or four-year maturity, $100,000 and five-year maturity. We ladder those maturities so that we have money coming due starting in year three in case rates rise, and then we can transfer to the higher rate.
That's the only way to time things. You can't time it, and you have to pragmatically go about strategizing to get around possible rate movements. But with annuity companies, you can't beat them. They have the big buildings for a reason and the big logos on the plane.
In conclusion, what's the best time to buy an annuity? Here's the Stan The Annuity Man's answer to that, which is right. It's when the contractual guarantees make sense to you. That's it. When that contractual number makes sense for your specific situation, for you and your family, that's the best time because you're transferring the risk, and that contractual guarantee makes sense. That's the real answer. Don't try to time it; you can't beat 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.