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Ask the Retirement Expert: I Plan on Using an Annuity When I Retire. Should I Buy It Now or Wait?

Craig Volk, RICP® •  November 20, 2015 | Your Finances, Enjoying Retirement, Ask the Expert

Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:

I plan on using an annuity when I retire. Should I buy it now or wait until retirement?

By Craig Volk

In April of 2000, Craig began his career with Northwestern Mutual. As a Wealth Management Advisor and Retirement Planning Specialist, Craig’s practice focuses on an integrated planning approach involving retirement distribution planning, investment management and wealth distribution.

It really depends on what you’re doing with your money now and what you need or may need in the future.

Right now, interest rates are low. If you have investments that are likely to grow at a higher rate of return, it probably makes sense to leave money there and buy the annuity when you need it. Of course, the market is always subject to go down. So if you were to lose principal value and didn’t have time to recover, you would have less cash to deposit into the annuity, resulting in lower payments in the future. However, if you are sitting on cash or low-risk, low-interest-producing assets (like bonds), it might make sense to buy an annuity now with those funds.

You’ll also want to think about what kind of access you want to your money. Most annuities, whether they are fixed or variable, give you a withdrawal option of 10 percent of the value or interest earned on the original investment to be used in the event of an unforeseen emergency. But an annuity should be funded with money that is intended for investing long-term and is to be used to supplement income in retirement1.

There’s no “one size fits all.” Consult with an advisor who understands your circumstances so you can customize the appropriate solution.

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1Annuity contracts are sold by life insurance companies with all guarantees backed by the issuing company.   Withdrawals from annuities may be subject to ordinary income tax, a 10% IRS early withdrawal penalty if taken before age 59½, and contractual withdrawal charges. 

No investment strategy can guarantee a profit or protect against loss.  

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