Ladder Annuities can Provide a Steady Income

Are you seeking an investment that provides guaranteed income in retirement? You might want to consider immediate annuities.

The Laddering Strategy

With an immediate annuity, you receive fixed payouts over a set number of years in exchange for an initial lump-sum payment. However, you may be able to minimize the risk of low returns and take advantage of any rise in interest rates that occurs by laddering annuities.

The laddering strategy involves purchasing immediate annuities over a number of years. So, instead of spending your money on a single annuity that locks you into a lifetime interest rate, you invest in multiple annuities over time. You might buy 1 annuity a year for 4 years or an annuity every 3 years for 12 years, etc. The time frame for staggering each annuity is up to you.

You can also ladder annuities based on the start dates of when you’ll begin receiving the payments. Combining purchase and start date laddering strategies is another option.

Laddering Benefits

Annuity payouts are based on the amount of money invested, the prevailing interest rate and the recipient’s life expectancy. So, the older you are when you begin receiving payments, the larger those payments are likely to be. And, if interest rates are higher in later years, you could benefit from having used a laddering strategy.

The Downsides

Investing a large sum in immediate annuities means you’ll no longer have access to that money. Keep in mind that surrendering an annuity can be costly and difficult if you have an unanticipated expense in the future and need your cash.

It’s also important to understand that unless the annuity is a joint lifetime annuity or includes a survivor payout, annuity payments stop at your death.

Food for Thought

If the security of having a guaranteed income appeals to you, consider reviewing laddering strategies with your financial professional.

Immediate fixed annuity contracts, annuitants receive a fixed income stream based, in part, on the interest rate guarantee at the time of purchase. Annuity guarantees are backed solely by the claims-paying ability of the issuing life insurance company.