Laddering Annuities Can Provide a Steady Income

Are you seeking an investment that provides guaranteed income in retirement? Consider immediate annuities.

The Laddering Strategy

With an immediate annuity*, you receive fixed payouts over several 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 several 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 one annuity a year for four years or an annuity every three 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.

Laddering Benefits

Annuity payouts are based on 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 using a laddering strategy.

The Downsides

Investing a large sum in immediate annuities means you’ll no longer have access to that money. Remember 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. Your financial professional can help you find the right annuity products for your situation.

*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.