Annuity Ladder

AAA

DEFINITION of 'Annuity Ladder'

An investment strategy for retirees or near-retirees that entails the purchase of immediate annuities over a period of years to provide guaranteed income while minimizing interest-rate risk. Annuity ladders allow retirees to maintain a portion of their investments in equities and bonds while periodically using a portion to purchase annuities. Purchasing annuities from a variety of insurance companies minimizes the potential for losses if an insurer goes under.

INVESTOPEDIA EXPLAINS 'Annuity Ladder'

When interest rates are low, it doesn't make sense to lock in that interest rate for a long time. Since no one can predict where interest rates will go, purchasing annuities over a period of years allows an investor to minimize the risk of low returns. An annuity ladder can also generate tax-free income by using a Roth IRA conversion strategy.

RELATED TERMS
  1. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  2. Income Annuity

    Annuities designed to start paying income as soon as the policy ...
  3. Annuity

    A financial product sold by financial institutions that is designed ...
  4. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  5. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  6. Laddering

    The promotion of inflated pre-IPO prices for the sake of obtaining ...
Related Articles
  1. Calculating The Present And Future Value ...
    Investing Basics

    Calculating The Present And Future Value ...

  2. Passing The Buck: The Hidden Costs Of ...
    Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of ...

  3. Guaranteed Retirement Income In Any ...
    Retirement

    Guaranteed Retirement Income In Any ...

  4. Explaining Types Of Fixed Annuities
    Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center