Laddering Annuities

Annuity laddering is a financial strategy of purchasing several annuities of lower value over a period of years. When interest rates are low, laddering can offset the small returns from annuities by allowing the owner to stagger the end dates of the contracts.

Rachel Christian, Writer
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    Rachel Christian

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    Rachel Christian is a writer and researcher focusing on important, complex topics surrounding finance and investments. She is a Certified Educator in Personal Finance with FinCert, a division of the Institute for Financial Literacy, and a member of the Association for Financial Counseling & Planning Education (AFCPE).

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  • Updated: August 11, 2023
  • 5 min read time
  • This page features 10 Cited Research Articles
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APA Christian, R. (2023, August 11). Laddering Annuities. Retrieved June 15, 2024, from

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Chicago Christian, Rachel. "Laddering Annuities." Last modified August 11, 2023.

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One of the challenges of purchasing an annuity or investing stocks or real estate is entering the market at the best time to maximize return.

A strategy known as laddering — or buying multiple financial products with different maturity dates — is one way to address this challenge.

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What Is Laddering?

Financial laddering is a method of investing in bonds and CDs, but it’s also a good financial strategy for maximizing the value of annuities.

Laddering your annuities provides you with multiple fixed income instruments that you can access. Your annuity payment amounts rise with age and interest rates. In 2022, interest rates are increasing after a difficult decline during the COVID-19 pandemic. According to CNBC, average payouts for some annuities have increased by between 11% and 13% since the start of 2022.

Laddering is a strategy meant to increase the chance of earning more money when interest rates swing upward.

You might, for example, open a new CD, invest in a different bond or buy an annuity every year for several years to get the best deal available under the economic conditions of the time period during which you make each transaction.

Those conditions include changing interest rates, which the insurance companies determine using factors that include your age and life expectancy.

Your age at the time of an annuity purchase and, more importantly, your age when payouts begin will affect the offer you get for an annuity.

Why Investors Ladder Annuities

Laddering annuities is meant to offset sluggish returns. There is a significant opportunity cost to investing in a long-term product when the market is performing poorly. This strategy serves to mitigate this loss.

Laddering is attractive to investors for other reasons, too.

“The main benefits of laddering are spreading interest rate and reinvestment risk over time, and getting short-term liquidity while taking advantage of longer term rates,” Carey told Forbes.

This can be especially consequential when you’re talking about setting up your retirement funds, which should not be so rigid that your income can’t keep up with the increases in your cost of living.

In other words, you don’t want to tie up all your money in low-rate vehicles and forgo the opportunity to move it into investments that would perform better.

At the same time, you don’t want to invest in hopes interest rates will go up only to see the rates sink even lower.

Different Ways to Ladder

A financial advisor can help you determine the best laddering strategy for your situation. Your advisor may suggest one of the following tactics.

Spreading Out Your Principal

Maybe you have a total of $400,000 to invest in annuities. You can use $100,000 each year toward an annuity purchase.

This also allows you to invest part of your retirement savings to see if you’re comfortable with annuities before tying up a large percentage of your savings.

30 year Bond rate
Source: Yahoo! Finance

Another way to ladder annuities is to buy several fixed-rate annuities with different surrender periods. The surrender period is the amount of time you must wait to withdraw funds from your annuity without facing a penalty. If you do need to withdraw more than what is allowed in the contract, you will have to pay a surrender charge.

At the end of the surrender periods, you can withdraw your money without penalty as long as you’re at least 59.5 years old. Alternatively, you can move the funds to an annuity with better terms through a 1035 exchange. These exchanges are a way to trade in one annuity for another without tax consequences. The 1035 refers to the provision in the tax code that covers them.

If the annuity contract is as good as the offerings at the end of the surrender period, you can keep the annuity contract as is. Having several annuities with different surrender periods allows you to review the terms of each contract at the end of its surrender period and decide whether you could get better returns in another annuity.

Read More: How to Diversify Your Portfolio

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Take Advantage of Different Features

You can also ladder various types of annuities. For example, you can invest some of your money into the purchase of fixed annuities while investing other funds into indexed or variable annuities. This allows you to have a balance of the advantages and disadvantages of each type.

Because each type of annuity has unique benefits and drawbacks — such as the reliability of predetermined interest rates on fixed annuities versus the less stable rates of variable annuities, which are tied to the performance of their subaccounts and may ultimately provide higher returns — if you ladder different types of annuities, you create more opportunity to benefit from, or protect your money from, market volatility.

Increase Your Payments by Staggering Payout Dates

Finally, in addition to laddering the actual purchase of annuities, you can ladder when they will start paying you income, beginning at the age of 59 ½.

The older you are when you start receiving the payments, the higher the payments will be. This is because life expectancy is one of the factors that determine annuity payout amounts. The longer your life expectancy, the lower your payments will be.

Hence, you’ll receive larger payments from a deferred annuity that doesn’t start paying out until you turn 75 years old than you would from an immediate annuity that starts paying you at age 60.

In addition to allowing you to take advantage of different market conditions, diversifying annuities from different companies gives you a layer of protection against the unlikely chance that one of the insurance companies goes bankrupt or runs into financial problems.

Read More: Are Multiple Annuities a Good Idea?

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 11, 2023

10 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

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  2. Carey, M. (2018, September 4). 2018 Guide to Bond, CD And Annuity Laddering. Retrieved from
  3. Carlson, B. (n.d.). How to Use the Annuity Ladder for Higher Security. Retrieved from
  4. Chevreau, J. (2017, December 14). Beef up retirement cash flow. Retrieved from
  5. Iacurci, G. (2022, May 19). Climbing Interest Rates Mean Good News for Annuity Buyers. Retrieved from
  6. Korn D.J. (2017, October 11). How to hedge risk with annuity ladders. Retrieved from
  7. Marquit, M. (2019, October 16) Should You Invest in Annuities? Interview with Stan the Annuity Man. Retrieved from
  8. Myers, R. (n.d.). Building a Ladder to Financial Security. Retrieved from
  9. Roth, A. (2019, January 14). An Annuity Hater Revisits SPIAs. Retrieved from
  10. Sheedy, R. (2012, April 19). Hedge Bets With an Annuity Ladder. Retrieved from