Annuities aren’t everyone’s favorite investment, and I generally don’t recommend them. An interesting thing about annuities, though, is that they can serve as a very effective backup in your financial plan. Here’s why: With most investments, there’s a benefit to getting started early to build wealth. All things being equal, the earlier you start earning and saving, the better.
But with annuities, it’s the opposite. It pays to procrastinate. That’s because annuity payouts are tied to life expectancy. So the longer you wait to buy an annuity, the more generous it will be. Of course, you can’t wait too long; you still need to have some savings left with which to pay for the annuity. But in general, because of this feature, annuities can serve as an effective Plan B if money is running short late in life.
