Laddering Strategies using Annuities
Maryland Annuity Resource offers Annuities for Annuity Laddering Strategies in Maryland, Washington D.C., and Virginia. Annuity Laddering Strategies are using a combination of Immediate Annuities, Fixed Annuities, Fixed Indexed Annuities with varying terms and overlaps to create an income stream that you cannot outlive. There are many different variations and strategies to create a larger income in the first years of retirement, a medium income mid retirement, and a level income stream to maintain the quality of life in retirement you deserve.
Creating an Annuity Laddering income stream with multiple annuities is very similar to the tied and tested method of CD laddering in the past. Laddering strategies started with CD’s, then the bond market and securities market created similar strategies, but overall you are minimizing your risk and securing your principal and interest for future income.
You are never too young to start annuity laddering. Annuities have qualified and non qualified options with opening deposits as little as 2k and maxing out at 1 million. Issue ages for Annuities are 0-80 so they are ideal for college funding, income planning, retirement planning and just saving for the future. Annuities have guarantees on principal and interest as stated in the contract so no matter what Annuity you choose, once interest is credited, it cannot go down. The only reason your principal in your annuity would go down, is if you made a withdrawal and incurred surrender charges.
When you are ready to start a laddering plan Fixed Annuities have set terms and set interest rates similar to CD’s where you know how long and how much you are going to earn. We suggest starting with a 3 yr. Fixed Annuity, 5 yr. Fixed Annuity, 7 yr. Fixed Annuity, and a 10 yr. Fixed Annuity. When the 3yr. Fixed Annuity matures, renew or rollover to a 5yr. That leaves 2yrs. left on the original 5yr. Annuity. When the original 5yr. Annuity matures, renew or rollover to a 7 yr. That leaves 2yrs. left on the original 7yr. Annuity. When the origianl 7yr. Annuity matures, renew or rollover to a 10yr.
You get the idea, and it keeps rolling and rolling over and over. The great thing about this whole strategy is the financial concept of compounding. Interest compounding on interest compounding on interest, roll it over and get even more compounding.
Similar if not identical to laddering with Fixed Annuities, MYGA Annuities come with guarantee that is actually in the name of the product. Multi Year Guarantee Annuities are a great choice in the current financial environment where CD’s and Banks as well as the government seems like they are punishing savers. There are limits to contributions to all types of retirement accounts beside non qualified, so how in the world are you supposed to retire after working 25-30 years without another option. That option is laddering annuities and you can even choose MYGA Annuities to do it. There are several considerations and terms to choose from no matter what type of annuity you choose. Most carriers have MYGA term options from 3,5,7, and 10 years.
Laddering with Fixed Indexed Annuities is a little bit different because you have so many options for Fixed Indexed Annuities. The best part of laddering with Fixed Indexed Annuities is that these type of annuities have Income Riders. Most carriers want you to keep the account open at least one year before turning on the income stream, but that income stream is guaranteed by the contract to pay you as long as you live. You can however utilize different payout options for the previous two types for set terms or for life as well but it is mainly up to you and your investment choices. Fixed Indexed Annuities have fixed accounts that earn interest, Index accounts that earn interest based on allocation options and the upside of those index options. Once interest is credited in annuities, it cannot go down. Most carriers have Fixed Indexed Annuity term options ranging from 7-14 years so these should be in addition to the previous three options above.
Using Immediate Annuities in laddering strategies basically is setting the immediate income payouts for different terms. You can open the first Immediate Annuity with a 5 year payout option where you receive principal and interest all paid back to you within 5 yrs. The second Immediate Annuity can have a payout option to pay income for 7 or 10 years where the first 5 years of retirement, your income is higher. In year 6 the income will drop to a moderate level where most of your expenses are set and known. The third Immediate Annuity could have a 15-20 year payout term where you receive all of your principal and interest back over a 15-20 year term. So years 1-5 are higher income, years 7-15 are moderate income and years 15-20 are maintaining an income level for a nice and comfortable retirement.
Unless there are drastic changes in the current market environment and the government as well as banks raise the savings rate for these types of products, we strongly advise against using these types of investments. There are many that will not listen and settle for less that .05% on a bank CD but if they are in love with the banks, we will not break up that love affair.
Annuities are contract between you and an insurance company. They are not FDIC insured and are based solely on the financial strength of the insurance company. These insurance companies have ratings that are assessed based on the overall financial stability of that particular insurance company. Most insurance companies display their ratings on their brochures and other related materials. If the ratings are A++ or A+ then rest assured that your invest is only for a short period of time and you have taken the steps to ladder and diversify your annuity choices. We do suggest spreading out your investments to the strongest rated top 5 insurance companies, not just one. Annuities also come with surrender charges for either the majority of the term or at least the first couple of years.
If you are a saver and you want a better choice for saving and investing in your future, we will be happy to help you with your Annuity Laddering Strategy.
For more information about Annuity Laddering Strategies, click here.