Laddering Annuities

Laddering is a financial strategy that can help you maximize the value of your annuity contracts. It is a relatively straightforward approach that can bolster your income and mitigate exposure to interest rate risk.

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  • Written By
    Thomas J. Brock, CFA®, CPA

    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Professional

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

    Read More
  • Edited By
    Michael Santiago
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    Michael Santiago

    Senior Financial Editor

    Michael Santiago is a skilled writer and editor with over a decade of experience in various industries. As a senior financial editor, he collaborates with a team of experts to develop compelling and accurate content.

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  • Financially Reviewed By
    Stephen Kates, CFP®, Licensed Life Insurance Producer

    Stephen Kates, CFP®, Licensed Life Insurance Producer

    Principal Financial Analyst for

    Stephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.

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  • Updated: November 28, 2023
  • 4 min read time
  • This page features 4 Cited Research Articles

Key Takeaways

  • Annuities are financial contracts that can provide investors a safe, predictable source of income, but they are usually exposed to a high degree of interest rate risk.
  • An effective way to mitigate interest rate risk is by building an annuity ladder.
  • There are various ways to build an annuity ladder; three common approaches include spreading out your principal, staggering your payouts and leveraging different types of annuities.

One of the challenges of purchasing an annuity or any other type of investment is entering the market at an opportune time to maximize your return. A financial strategy known as laddering — buying multiple financial instruments with different cash flows — is one way to address this challenge.

For annuity investors, laddering is an effective way to generate a steady stream of income with a moderated level of interest rate risk. Read on to learn more about this shrewd approach to investing.

What Is Annuity Laddering?

Annuity laddering is a financial strategy that can help you maximize the value of your annuity contracts. It entails purchasing multiple annuities with different contractually-stipulated cash flows.

Each annuity represents a rung on your annuity ladder, providing a distinct cash flow reflective of a specified interest rate. By compiling multiple annuity contracts, you can diversify your cash flows and improve your financial position.

Why Investors Ladder Annuities

The objective of annuity laddering is to bolster your income streams and reduce exposure to interest rate risk. This means reducing the possibility of putting too much money into relatively low-yielding annuities and increasing the possibility of putting money into relatively high-yielding instruments.

Matt Carey, a retirement expert with experience at the U.S. Department of the Treasury, summarizes the benefits as follows: “The main benefits of laddering are spreading interest rate and reinvestment risks over time, and getting short-term liquidity, while taking advantage of longer-term rates.”

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How soon are you retiring?

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What is your goal for purchasing an annuity?

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Laddering annuities, like any fixed income investment, can provide staggered income, interest and liquidity benefits, as each contract may start and end at different times in different market environments. However, unlike bonds or CDs, many annuities have higher minimums to invest, so laddering annuities across different contracts or different companies may be difficult for those with limited financial resources. It can be beneficial to build an income plan with a financial advisor who can help you optimize your investments and income sources for your own personal situation. 

Different Ways to Ladder

There are various ways to implement an annuity ladder. Three relatively straightforward approaches are described below.

Illustration of a woman climbing a latter with the title "Annuity Laddering," under the title reads "Spread out your principal, Stagger your payout dates, and Take advantage of different types of annuities."

Spread Out Your Principal

The easiest way to implement an annuity ladder is to simply spread out your principal. You can, for example, invest in a similar duration annuity every year for several years to capture the highest-yielding instruments available in the market at each transaction date.

In addition to mitigating interest rate risk, this approach will allow you the opportunity to gradually get comfortable with annuities. The reassurance can be invaluable, especially, for conservative investors worried about having adequate income in retirement.

An alternative way to spread out your principal is to buy several annuities with different surrender periods. As each surrender period expires, the annuity distributions can be activated. Alternatively, if the interest rate environment has increased since purchase, you can surrender relatively low-yielding annuities and purchase higher-yielding annuities or alternative investments.


A surrender period is the amount of time you must wait to withdraw funds from your annuity contract without facing a penalty. It coincides with the accumulation phase of an annuity.

Stagger Your Payout Dates

Rather than building an annuity ladder based on your purchases, you can implement one by focusing on your contracts’ income distributions. Most simplistically, this entails purchasing an immediate annuity, which begins making income distributions within one year of purchase, in tandem with a deferred annuity, which begins making distributions following a specified accumulation phase.

To increase the risk-mitigating nature of your ladder, you can purchase multiple annuities with different terms. In doing so, know that the older you are when you start receiving distributions, the higher the payments.

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Take Advantage of Different Types of Annuities

A final way to ladder is to leverage different types of annuities. For example, you can invest a portion of your funds in fixed annuities and the balance in indexed or variable annuities. 

This allows you to diversify your exposures and take advantage of the positive aspects of each type of annuity. By pairing the reliability and guaranteed interest income of fixed annuities with the unlimited (yet volatile) growth potential of variable annuities, you can create more lucrative investment opportunities for yourself, while maintaining an adequate degree of downside protection.

When building your portfolio, consider buying contracts from a variety of reputable insurance companies. This will provide you an additional layer of protection, in the event an issuer becomes insolvent or encounters other financial problems.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 28, 2023
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