Annuity Ladder


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.

BREAKING DOWN '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.

  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  3. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  4. Laddering

    The promotion of inflated pre-IPO prices for the sake of obtaining ...
  5. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  6. Interest Rate Risk

    The risk that an investment's value will change due to a change ...
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