When it comes to any type of financial strategy, there is no such thing as a one-size-fits-all answer for everyone. This is the case with investments and insurance, as well as the best timing for starting to generate a retirement income stream with an annuity. But when is the best time to start your annuity income?
Many financial advisors feel that the best age to start taking income from an annuity is between 70 and 75. Doing so at that age can allow for maximum payout from the annuity. This, however, won’t be true in all cases.
With that in mind, circumstances could dictate the need for a secure income stream at a younger age, due to forced early retirement, loss of work due to a disability, or even the desire to just simply exit the workforce at a younger age. Likewise, if you have an ample income from Social Security or other income sources, you could hold off on taking any money out of your annuity for quite some time.
Factors to Consider When Turning Your Annuity Income Switch to “On”
Regardless of when you’re ready to tell your employer goodbye and start generating income from an annuity, there are several important factors to consider. These can include:
- Surrender Charges – One of the biggest factors to consider when taking money out of an annuity is the potential surrender charges. Most annuities will charge you a fee if you take more than a minimal amount out during the first several years after purchasing it. In some cases, surrender charges can start out in the double digits. These fees will typically grade down over time, though, until the surrender fee eventually reaches 0%.
- IRS Early Withdrawal Penalty – Even if your annuity’s surrender charge period has elapsed, you could still incur a 10% early withdrawal penalty from the IRS if you begin taking withdrawals before you are age 59 ½.
- Taxes – Taxes are another key factor to keep in mind. That is because some – or even all – of your annuity income may be subject to income taxation. For instance, if you are taking income from a qualified annuity (i.e., an account that is funded with pre-tax dollars), it is likely that none of the funds have yet been taxed. Therefore, all of your income payments will be subject to taxation. On the other hand, if you have a non-qualified annuity, it is probable that the contribution(s) you made into the account have already been taxed by the IRS. Therefore, a portion of your payments (the gain) will be taxable, while another portion (the contributions) will be tax-free.
Have More Questions About Income from Annuities?
While annuities offer a long list of benefits, these financial vehicles also come with a myriad of “fine print,” which can make knowing what to do extremely confusing. So, if you’re not entirely sure when the best time would be for you to start taking income from an annuity, we can provide you with some guidance.
At Annuity Gator, we specialize in annuities. In fact, that’s all we do. We monitor the annuity marketplace on a daily basis, and we post our findings on our website as well as in our extensive annuity review database.
We pride ourselves on educating consumers on how annuities work, and how they may or may not be the right option for you. Our experts are here to help. So, if you’re looking for unbiased, objective advice about annuities, feel free to reach out to us directly by calling (888) 440-2468, or by sending us a message through our secure online contact form here. We look forward to hearing from you.