Investing Assets & Markets Annuities Strategies For Laddering Annuities By Stan Garrison Haithcock Stan Garrison Haithcock Website Stan Haithcock is a national annuity expert who serves as a consumer advocate on annuities. He has more than 25 years of experience in the financial services industry, with many of them spent as an investment advisor on Wall Street. Currently, Stan educates consumers about annuities through his platform, "Stan The Annuity Man." He has written several annuity owner's manuals, as well as a book, "The Annuity Stanifesto." learn about our editorial policies Updated on March 29, 2022 Reviewed by Andy Smith Reviewed by Andy Smith Andy Smith is a Certified Financial Planner (CFP), licensed realtor and educator with over 35 years of diverse financial management experience. He is an expert on personal finance, corporate finance and real estate and has assisted thousands of clients in meeting their financial goals over his career. learn about our financial review board Photo: Giordano Trabucchi/EyeEm/Getty Images Many investors buy CDs and bonds with staggered maturity dates. This practice is referred to as laddering. One reason to do this is so you can access money when the CDs and bonds mature without paying surrender charges. Another reason you might consider laddering is because of interest rates. No one, not even experts, can correctly predict interest rate movements, so laddering is a prudent and effective way to address the unknown. Annuities can also be laddered, and those laddering strategies can be used for income or yield. Yield is the return you earn over time from keeping your money in an annuity. Laddering CDs and bonds would be categorized as laddering for yield. With annuities, you can ladder for yield using fixed annuities, but you can also ladder for income. MYGA Annuity Ladders Produce Yield Similar to CDs Fixed-rate annuities, also known as multi-yield guarantee annuities (MYGAs), work similarly to CDs. A fixed rate is a guaranteed rate that lasts for a specific time. There are typically no annual fees with fixed-rate annuities, and surrender charges decline annually over the contractual time period. The main difference between a CD and a fixed-rate annuity (MYGA) is that the interest compounds on a tax-deferred basis in an MYGA. You have to pay taxes on the interest every year on CDs in a non-IRA account. For example, if you had $300,000, you would place $100,000 each in three-year, four-year, and five-year fixed-rate annuities. These types of fixed annuities have minimal fees and the yield is guaranteed. As money comes due after the surrender charge period, you can take the money in full and pay taxes on the interest, or you can transfer it to another annuity and continue to defer the taxes. You could also annuitize the annuity after you've passed the surrender-charge period. Annuitizing it means taking guaranteed fixed income payments for life. Once you annuitize an annuity, you can't make any changes to it. You may be able to leave a portion of your benefits to a survivor, but that depends on which payout option you choose. Note You may want to purchase your laddering annuities from different companies. Each company (and product) has its own terms, riders and interest rates, so review your options carefully and choose what's best for you. What Is a Mixed-Fixed Ladder? A mixed-fixed ladder is a combination of fixed-rate annuities (MYGA) and fixed-indexed annuities (FIA). It has the possibility of a slightly higher overall return because of the index option potential of the FIA portion of the ladder. What Is a Fixed-Index Annuity, or FIA? A fixed-index annuity, also referred to as an indexed annuity, fully protects your principal but also has a growth component attached to an index (typically the S&P 500). Indexed annuities were designed to compete with CD returns. Other Annuity Laddering Strategies Laddering annuities for income can be structured in many ways. Let’s take a look at a couple of annuity ladders that provide ongoing income. The Annuity Lifetime Ladder Utilizes SPIAs The lifetime ladder strategy involves buying single-premium immediate annuities (SPIAs) over a specific period of time. SPIAs are annuities that pay an income immediately after you purchase the annuity. The strategy is designed to catch interest rates as they rise as the life expectancy of the annuitant gets shorter. For example, a person with $500,000 wants to guarantee a lifetime income stream but is concerned that the current low interest rates might rise in the future. An efficient lifetime ladder would include the purchase of a $100,000 SPIA every year for five years. Even if interest rates remain the same during that period, the subsequent payouts will be higher based on the annuitant's age at the time of purchase. If interest rates rise, the payout will be even higher. The Target Date Stairstep Ladder Utilizes DIAs This type of ladder involves longevity annuities—also known as deferred income annuities (DIA)—and starting the income at different intervals. Deferred annuities earn interest during an accumulation period, then can be annuitized for a lifetime income. The target date stairstep ladder strategy is typically used to combat inflation by having different lifetime income streams turning on at future dates. An example of this could be a 60-year-old with $400,000 allocated to cover future inflation. Four separate longevity annuities (DIA) would be purchased at ages 65, 70, 75, and 80. Annuity income is primarily based on your life expectancy at the time the income stream is turned on, so as you age, the payments are higher. You would annuitize each annuity in the order of purchase, and each subsequent DIA would pay out at a higher rate. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Financial Dictionary. "Yield." NAIC. "Buyer's Guide for Deferred Annuities," Page 3. NAIC. "Buyer's Guide for Deferred Annuities," Page 4. III. "What Are the Different Types of Annuities?" NAIC. "Buyer's Guide for Deferred Annuities," Page 5.