Can a 55-year-old buy an annuity? Here's what to know now

If you're going to buy an annuity, it's important to get the timing right on your purchase. Jordan Lye/Getty Images

Retirement planning in your mid-50s puts you in an interesting position. You're likely earning well and your career is established, but you're also starting to see the finish line on the horizon. It's the age where financial decisions start carrying more weight, too. You don't have endless time to recover from mistakes, but you're not quite ready to play it completely safe, either. But while you may be shifting some of your retirement assets in your mid-50s, things like annuities, which are insurance contracts that provide guaranteed income streams in exchange for a lump sum payment, typically enter the conversation much later in life. 

That's because most people associate annuities with retirees who've already left the workforce and need a steady stream of income to rely on. But with pensions growing increasingly uncommon and market volatility becoming the norm, does it make sense to consider purchasing an annuity earlier than you think you should? The short answer is yes, you may want to consider an annuity before you've hit full retirement age. Annuities have gotten more flexible and diverse in recent years and securing a reliable income stream can have a big impact on your finances after you stop working. 

That doesn't answer the question of whether you can buy an annuity at age 55, though. Certain retirement products have age limitations, after all, and when you're a decade or more away from retirement, some tools may still be out of reach. So, can a 55-year-old buy an annuity, and perhaps equally important, should they? That's what we'll detail below.

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Can a 55-year-old buy an annuity?

Yes — in almost all cases, a 55-year-old has the option to purchase an annuity. There is no law prohibiting a 55-year-old from buying an annuity, and insurers offer a variety of annuity products to a wide span of ages. 

The mechanics are pretty straightforward, too. You can purchase either a deferred annuity, which grows tax-deferred until you're ready to start taking income, or an immediate annuity, which begins paying you right away. At 55, though, most people opt for deferred annuities since they're still working and don't need the income yet. This gives your investment time to grow while you continue earning a salary.

Insurance companies also typically prefer selling deferred annuities to younger buyers in many cases because it reduces the risk. When you purchase an annuity at 55 instead of 75, the company has more time to grow your money before it starts making payments to you. This can translate into a better rate and more favorable terms on your annuity.

That said, you should be aware that most annuities come with surrender periods that typically range from three to 10 years. During this time, you'll face penalties if you withdraw your money from the annuity account. So, if you're purchasing this type of product at age 55, you need to be confident you won't need that money before the surrender period ends.

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Should you buy an annuity at age 55?

While you can buy an annuity at age 55, whether or not you should depends largely on your financial situation, risk tolerance and retirement goals. It's not a universal solution, but there are scenarios where it makes considerable sense.

The potential advantages of buying at 55 include more time for tax-deferred growth and the ability to lock in rates while you're younger and potentially healthier. If you're worried about market volatility or don't want to spend your 60s stressed about having enough money, an annuity at 55 can also provide financial and psychological benefits.

However, there are legitimate reasons to wait, too. One is that annuities are illiquid investments, and at 55, you might still face unexpected expenses — like a child's wedding, a parent's healthcare needs or a career change. And, tying up a significant portion of your assets in an annuity could limit your flexibility during years when you might need it most.

The annuity rate you get also depends heavily on what the rate landscape and market conditions are when you purchase one. If you buy an annuity at 55 and rates improve significantly in five years, you've locked yourself into less favorable terms.

You should consider your overall portfolio mix, too. At 55, you still have time to build wealth through other investments that offer more growth potential. So, an annuity might make sense as one piece of your retirement puzzle, but it probably shouldn't be the whole picture.

The decision also depends on your employment situation. If you have a robust pension and Social Security benefits coming, you might not need the guaranteed income an annuity provides. But if you're self-employed or work for a company without a pension plan, creating your own guaranteed income stream at 55 could be a smart move.

The bottom line

A 55-year-old can absolutely buy an annuity, and for some people in this age bracket, it's a wise financial move. The key to making the right decision, though, is understanding that an annuity is a long-term commitment, one that trades liquidity for security. At 55, you're in a unique position — young enough to benefit from years of tax-deferred growth, but old enough to have a realistic picture of what your retirement might look like. So, you have plenty of time to be strategic. Make sure to use it wisely.