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What is the age 75 rule for annuities (and why does it matter)?
Planning for retirement today is a lot more complicated than it once was. With the average lifespan a lot longer, and with sticky inflation eating into people's savings at a time when markets remain unpredictable, figuring out how to make your money last after you stop working is no small feat. That's why many retirees are now turning to annuities, which are financial products designed to provide a steady stream of income no matter how long you live, to fill in the gaps.
Annuities can play a key role in retirement planning by offering guaranteed payments that supplement Social Security benefits and other income sources. But deciding when to buy an annuity — and how (or whether) it fits into your overall plan — isn't always a straightforward process. Part of the issue is that there's a lot of advice circulating about retirement preparation, and that includes the so-called "age 75 rule," which offers guidance on when to purchase an annuity to maximize payouts.
But what exactly is this rule, and is it grounded in financial wisdom, or is it just another retirement planning myth? Here's what the age of 75 rule really means — and what you should know about it.
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What is the age 75 rule for annuities?
The "age 75 rule" isn't a formal regulation or even a financial industry standard. Rather, it's a commonly shared belief that annuity buyers should wait until age 75 to purchase, since payouts are typically higher at that age. Here's why people think this way:
Annuity payouts are tied to life expectancy. Insurance companies calculate how much income you'll receive based on your age and projected lifespan. Someone buying an annuity at 75 is likely to receive larger monthly payments than someone who buys at 65, simply because the insurer expects to make payments over a shorter period.
Bigger payments seem more appealing. On paper, waiting until you're older to buy an annuity can seem like the smarter move. After all, why would you not want to lock in those higher numbers later?
But while there's truth in the idea that annuity payouts increase with age, that's not the full picture.
Find out how high your monthly annuity payments could be today.
Why waiting until 75 might not be the best move
The "age 75 rule" oversimplifies how annuities work and doesn't account for other important factors in retirement planning. Here's what to keep in mind before adhering to this rule:
You may need income earlier.
Many retirees use annuities as a way to secure predictable income to cover essential expenses like housing, healthcare and groceries. If you wait until 75 to buy one, you might spend years drawing down other assets, which could expose you to market risk or force you to sell investments during downturns. Buying earlier, on the other hand, could provide peace of mind and protect against outliving your savings.
Longevity risk matters.
While a 75-year-old gets higher monthly payments from an annuity, they also have fewer years left to collect those payments. If you purchase earlier, you lock in guaranteed income for life, no matter how long you live. That can be especially valuable if you end up living well into your 90s or beyond.
Your health and insurability could change.
Waiting too long could also mean missing your window to buy certain types of annuities. While some annuities don't require medical underwriting, others do. So, buying one after you have a significant health issue in your 70s could limit your options or make certain products more expensive.
When is the right time to buy an annuity?
The truth is, there's no particular annuity purchasing age that works for everyone. The best time to purchase an annuity depends on your unique circumstances, including:
Your retirement goals: Are you looking for income now, or do you want to cover expenses later in life? Determining when you need access to the monthly payments will help you decide the right time to buy.
Your other income sources: Any Social Security benefits, pensions and investment income you have may also influence how much additional guaranteed income you need.
Your risk tolerance: If market volatility keeps you up at night, locking in an income stream earlier may be worth it. But if you can tolerate the fluctuations, it could pay off to wait.
Your health and longevity expectations: If your family tends to live into their 90s, buying an annuity sooner rather than later could provide more lifetime value.
The bottom line
The so-called age 75 rule for annuities is more myth than hard-and-fast advice. While it's true that older annuity buyers often get higher monthly payments, waiting to purchase one isn't always the optimal choice. For many retirees, purchasing earlier can provide valuable peace of mind and ensure income when it's needed most. So, instead of focusing on an arbitrary age, consider your overall retirement plan, income needs and health when deciding if and when an annuity makes sense for you.
