Should You Buy An Annuity in Your 20’s?

New York Life Insurance Co. wants younger people to start buying their successful deferred income annuities.  Darla Mercado of Investment News talks about the recent change they’ve made to attract younger investors in “New York Life cuts initial deposit for annuity to attract youth.”  Previously, an initial investment of $10,000 was required to purchase New York Life’s Guaranteed Future Income annuity.  They have now lowered this amount to $5,000 to attract more than the Baby Boomers who are currently loving this annuity product.  Investors in their 20’s, 30’s, and 40’s don’t always look to annuities as a place to put their money, but deferred annuities that guarantee lifetime income in the future can be good for them too.

Most younger people who are forward thinking about saving for retirement beyond their work 401k plans use traditional IRA’s to save.  This year’s limit for contributions was $5,500, so New York Life is banking on the fact that the younger generations would take the money and put it into an annuity instead.  In the less than two years since New York Life started selling the deferred income annuities, they have sold more than $1 billion of the products.  Baby Boomers typically rollover 401k and other retirement savings in the Guaranteed Future Income annuity in order to make their own pension stream of income during retirement.

The company believes that putting money into this annuity on a regular basis to save for their future retirement income needs is a great idea for younger investors.  After the initial $5,000 deposit, investors can put any amount into the annuity account to grow the premium.  Many younger investors have a certain amount automatically taken out from their checking or savings account yearly, much like they may for an IRA contribution.  Without the traditional pensions that their Grandparents had, the younger generations have to take charge of funding their own retirement or risk running out of money at a critical time in life.

Not everyone thinks that people in their 20’s and 30’s should be putting money into an annuity though.  Some advisors argue that younger investors are able to take on more market risk, so they don’t need the security of an annuity until they are older.  This could definitely be true for some younger investors, but those already putting money into an IRA may like the security of starting their annuity young and having a large balance to draw upon in retirement.  They can still take risks with their workplace retirement plans or other savings.  Other advisors argue that young people only care about paying down their student loans and buying houses.  This is definitely true for some people, but not for all young people.  Some don’t have student loans and are focused on savings.  Putting $5,000 yearly into an annuity could be a good step for younger investors to take to better prepare for their future retirement, even if it is three or four decades away.

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