How Old Do You Have to Be to Buy an Annuity?

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An annuity is a legal contract between you and an insurance company. In a nutshell, you give money, or "premium" to a life insurance company in exchange for a contract guaranteeing you a future stream of income. The income stream can begin immediately with an immediate annuity, or at a future date, with a deferred annuity. Because an annuity is a legal contract, you must be at least 18 years old to purchase an annuity. In practice, however, many companies will not sell certain kinds of annuities to very young people or very old people, due to the poor suitability of these products for people in these age groups.

Regulatory Overview

Annuities are insurance products, and as such are regulated by state regulators rather than at the federal level. Each state, therefore, can impose its own limitations and qualifications as to whom can purchase an annuity.

Age of Majority

Different states can impose a different age of majority, which is the age at which a person is held legally responsible for his or her actions. In most states, the age of majority is 18. Mississippi, however, defines the age of majority at 21.

Fixed Annuities

Even where a very young person can legally enter into an insurance contract, many companies will not sell an immediate lifetime income annuity to a very young person. The reason is that these contracts essentially lock in a relatively low payout rate for the annuitant for life. Most very young people would be better off investing their money for the long term and getting better returns, rather than locking themselves in to a low stream of income off of a lifetime income annuity. Some annuity companies will not sell these products to people younger than age 40, for example.

Beneficiaries

You can be an annuity beneficiary at any age. In fact, it is not uncommon for grandparents to name a minor grandchild as a joint annuitant on a lifetime income annuity. The result is that the child will receive a sum of money every year, after the grandparent dies, for the rest of the grandchild's life. These are often marketed to grandparents who have their own income needs comfortably met as gift ideas.

Tax Sheltered Annuities

Annuities are popular investments within 403b plans, also called "tax-sheltered annuity plans," because of the predominance of annuities within these plans.

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