Ladder Annuities for Steady Income

Are you seeking an investment that provides guaranteed income in retirement? You might want to consider an immediate annuity.* With an immediate annuity, you receive fixed payouts over a set number of years in exchange for an initial lump-sum payment.

Investing a large portion of your retirement savings in an annuity when interest rates are low may not seem like a smart move. 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

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 one annuity a year for four years or an annuity every three years for 12 years, etc.

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 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 will 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 those funds. That’s because early surrender of an annuity can trigger various fees that can be costly. So, if you have an unanticipated expense in the future and need cash, be sure to have an emergency fund so you do not have to tap your annuity.

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

Food for Thought

If the security of having a guaranteed income appeals to you, review 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.