At what age is it best — to buy an annuity?

How rates improve with age

An annuity rate is driven by two factors: the buyer's age (which determines expected payout duration) and prevailing gilt yields (which determine the return the insurer earns on the capital).

At 60, a level single-life annuity might pay around 5.5–6.0% of the pot per year. At 65, roughly 6.5–7.0%. At 70, 7.5–8.5%. At 75, 9.0–10.5%. These are indicative figures for 2025/26 and fluctuate with gilt yields, but the age gradient is consistent: older buyers get more per pound because the insurer expects to pay for fewer years.

The improvement is not linear. The rate accelerates at older ages because mortality risk increases exponentially. The jump from 70 to 75 is proportionally larger than from 60 to 65.

This creates an obvious incentive to wait. But the incentive is more nuanced than it first appears.

The cost of waiting (opportunity cost)

Delaying an annuity purchase means the pot stays invested — which has both upside and downside. The pot may grow, producing a larger fund to annuitise later at a better rate. Or it may fall, producing a smaller fund that partially or wholly offsets the improved rate.

There is also a simpler opportunity cost: the years of guaranteed income you forgo. If a £100,000 pot would pay £6,500 per year at 65, waiting until 70 means five years of income not received — roughly £32,500 in total. The rate at 70 might be £8,000, but it takes approximately eight years of the higher rate (to age 78) before the cumulative income from the delayed purchase catches up with the earlier one.

This "breakeven" calculation varies with exact rates, but the principle holds: the later you buy, the longer you need to live for the delay to pay off financially. If health is uncertain, this matters.

The annuity calculator can help model the income from different purchase ages on the same pot.

Health as the wildcard

Health disrupts the age calculation in two ways.

First, declining health may qualify for an enhanced annuity. If a condition develops at 68 that would not have been present at 62, waiting inadvertently produces a better rate — not because of age alone, but because the enhancement adds 10–40% on top of the age-related improvement. This is not something that can be planned for, but it is worth knowing: health status at the time of purchase matters as much as age.

Second, someone with a shortened life expectancy faces a different calculus entirely. The case for an annuity — a product that pays off over a long life — weakens if the expected payout period is short. In those circumstances, drawdown or a lump sum may deliver more total value. Conversely, someone in excellent health at 70 with a family history of longevity has the strongest possible case for an annuity: the insurer is likely underpricing their actual lifespan.

Phasing: buying in tranches

The single hardest problem with annuity timing is that rates change. Gilt yields move daily. An annuity purchased in January 2022 would have paid roughly 30% less than the same annuity purchased in January 2024, purely because of interest rate movements. Nobody can reliably predict where gilt yields will be in three or five years.

Phased annuity purchase — buying an annuity with a portion of the pot every few years rather than all at once — is the standard hedge against this timing risk. It works on the same principle as pound-cost averaging in investments: by spreading purchases over time, you avoid the risk of buying everything at the worst possible moment.

A common approach: keep the pot in drawdown from the initial access age, then annuitise 20–30% of the remaining pot every three to five years. Each tranche is bought at a higher age (better rate) and at whatever gilt yield prevails at that time. By the mid-70s, most or all of the pot has been converted to guaranteed income — at a blended rate that smooths out the peaks and troughs of any single purchase date.

This phased approach also interacts well with the hybrid strategy: the drawdown portion shrinks naturally over time as tranches are annuitised, reducing investment risk precisely when the retiree is oldest and least able to recover from a market downturn.

The trade-off is complexity and ongoing decision-making. Each tranche requires a new annuity purchase, a new round of comparison shopping, and a judgment about how much to convert. For those who want simplicity, a single purchase at a chosen age is cleaner — just less flexible.

For the broader comparison of annuity versus drawdown, see annuity vs drawdown.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.