Annuity Ladder

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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.

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RELATED FAQS
  1. For what types of financial instruments would I want to calculate the present value ...

    Because the present value of an annuity formula relies on a consistent interest rate and identical payments for a set period ... Read Full Answer >>
  2. What exact information is included in the interest rate when calculating the present ...

    When calculating the present value of an annuity, the interest rate percentage is the rate at which future payments are discounted ... Read Full Answer >>
  3. How do you calculate a present value of annuity using Excel?

    Calculating the present value of an annuity using Microsoft Excel is fairly straightforward if you know the interest rate, ... Read Full Answer >>
  4. What is the difference between the present value of an annuity and the future value ...

    The present value of an annuity represents the sum that must be invested now to guarantee a desired payment amount in the ... Read Full Answer >>
  5. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  6. Why would I need to calculate the present value of an annuity?

    To calculated the present value of an annuity, all that is needed is the interest rate, payment amount and number of periods ... Read Full Answer >>
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