A beginning retiree statistically has about 25 years of retirement. In fact, some retirees fear they might outlive their retirement assets. Longevity risk and having to weather fluctuating markets make laddering annuities an attractive retirement approach to assure yourself an income for life.
Without the lifetime guarantee that annuities can give you, you'd have to have sufficient assets to live off your earnings only. Withdrawing only about 4% per year will probably allow you to weather market fluctuations and preserve your assets. But that means you'd need $1 million assets to reliably deliver $40,000 per year apart from your Social Security and pension.
Laddering annuities can minimize your worries about market fluctuations and smooth out interest rate fluctuations too. Laddering annuities means dividing up your assets - perhaps into 5 parts. You'll purchase immediate life annuities to begin their payments at different times. Annuity payouts increase with the prevailing interest rate when they begin and also increase with the age you're at when you begin a lifetime payout. Here's a couple of ways to do it.
*Slowly converting your investments into lifetime annuities:
One strategy involves slowly building a lifetime income stream as you convert more assets into immediate annuities over time. You begin by dividing your money with one segment used to purchase a fixed immediate lifetime annuity now. You keep the remaining segments of assets in stocks and bonds to continue to grow and build your wealth - and using for income too if needed.
Then, perhaps five years later, you supplement the income from that first fixed immediate annuity by purchasing another annuity - ideally from a different company using another segment of your invested assets.
A couple or five years after that, you can purchase yet another annuity from a different company. You see your annuity income grows. Your increasing age will help increase the lifetime payouts of later annuities.
*Buying multiple deferred annuities plus begin a finite term fixed annuity:
Another strategy has you purchasing all the annuities - perhaps 5 - at once with your investment money. One will be a fixed immediate annuity of finite term - perhaps 5 years - while the others remain deferred annuities which earn tax-deferred interest. As the income stream ends for the fixed immediate annuity, convert one of the deferred annuities to a finite term annuity payout. The remaining deferred annuities would begin payouts at future dates in like measure. You may convert the last one - or two - to an immediate lifetime annuity.
The deferred annuities will grow - and more so the longer they are deferred. This will increase the monthly payout you receive from each as it is converted into a finite term immediate annuity.
The last deferred annuity to be converted will have grown the most. In addition, if you convert it to a lifetime annuity you'll assure yourself an income for life. An, by then, your older age at which you begin it will enhanced your payout too.
Shane Flait helps you with your financial legal, tax, and retirement goals.
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