By Dave Stanley
Integrity Financial Services, LLC
If you are like many pre-retirees or retirees, you may be hesitant to purchase annuities because you worry you will enter the market at the wrong time and won’t maximize your returns. An increasingly popular technique known as “annuity laddering” may help guard against this situation and make the transition to annuities much easier and less stressful for you.
Building an annuity ladder means that you purchase a series of annuities over time instead of dumping a lump sum into one annuity that locks you into one rate. With a ladder, you split your premium across multiple smaller annuities. For instance, maybe you decide to buy one annuity every two years for the next ten years. Or you buy one annuity per year for the next five years.
The annuity ladder strategy has several advantages
The first advantage is that you don’t have all your eggs in one basket. By diversifying your annuities, you are less susceptible to the fluctuations of the market.
The second advantage is that you can take advantage of changes in interest rates. When interest rates rise, you can purchase annuities that have not yet been affected by the market change.
The third advantage is that you can ladder annuities with different payouts. For example, you could buy an annuity with a term period of 5 years, the next year buy another 5-year term period, and up the ladder, you go. When you use the annuity as income, when one matures, simply start converting them to an income stream. Income periods can be any length you wish, even a lifetime. This way, you would have a stream of income that would last for the rest of your life.
Diversifying to reduce risk
Laddering annuities can be a great way to secure your financial future. By diversifying your annuities, you can protect yourself from market fluctuations and take advantage of changes in interest rates. By laddering annuities with different payouts, you can ensure that you have a stream of income that lasts for the rest of your life.
Annuity laddering can help you manage risk. By laddering annuities with different maturity dates, you create a “spread” that can protect you against interest rate risk.
Since predictions of whether interest rates will go up or down are, at best-educated guesses, an annuity ladder lets you bet on both scenarios. A ladder may increase your chances of earning more when rates go up or smooth out losses if rates go down.
Always review to see what’s right for you
There are many different ways to build annuity ladders for yield, including fixed-rate ladders using multi-year guaranteed annuities (MYGAs). You can also use a “mixed-fix” approach combining MYGAs and fixed–index annuities. Deferred multi-year ladders work in a somewhat similar fashion to certificates of deposit (CDs).
Another approach is the deferred multi-year annuity ladder. You take a lump sum to purchase several small annuities in a deferred multi-year annuity ladder, each with a different maturity date. As each annuity matures, you either roll it over into a new annuity or convert it to income.
Creating an annuity ladder may not work for everyone. Still, it is worth bringing up with your retirement advisor, especially if you find yourself considering adding Safe Money products to your portfolio.
Dave Stanley is the host of Safe Money Radio WOOD1300 AM, 106.9 FM and a Financial Advisor and Writer at Integrity Financial Service, LLC, Grandville, MI 49418, Telephone 616-719-1979 or Register for Dave’s FREE Newsletter at 888-998-3463 or click this link: Dave Stanley Newsletter – Annuity.com Dave is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.
