George Harmer, CPA, MBA
From Kiplinger’s Retirement Report – May 2013
“There is no guarantee that an annuity ladder would provide more income than if you’d bought one annuity. But research indicates that laddering annuities might boost a nest egg.”
“A study by MassMutual Financial group compared several retirement-income strategies including one portfolio made up of just stocks and bonds and one that also included a ladder of fixed annuities purchased at various times. Each portfolio started off at $100,000 and was assume to be held by a 65 year old man.”
“The Mass Mutual study reviewed the investments’ growth using market data from 1980 to 2006. The stock and bond portfolio ended up with a value of $489,346, while the one with laddered annuities ended at $735,292, the highest values of al the strategies tested” – Editorial Note: A shame they didn’t run this through 2010 and catch the market downside – the gap would have been even larger.
“As for deciding how you should stager your ladder, there are no hard and fast rules. Experts generally you want to get to halfway between your age and your life expectancy. For example, a 65-year old would want to complete the ladder in about ten years.”
Why do this??? To offset against those clients who say that the interest rates today are so low that they would miss out if the rates rise. By laddering they can put their retirement dollars in “waves” and catch higher rates should they occur in the future. You could buy one annuity every year for the next five years or buy one every five years for the next fifteen. Either way – you counter the low interest rate argument.