As an older retiree, you may no longer wish to worry about market fluctuation effects on the segment of your investments you rely on to give you income. In that case, you may want to convert those to a fixed annuity to give you a fixed payment for life. Laddering fixed annuities can help you maintain some control on these payments.
Buying a single premium immediate annuity (SPIA) will pay you a fixed income for life. But the constant payment amounts depend on the current interest rate and your life expectancy. Payments are larger when you invest at times of higher interest rates and a shorter life expectancy. Once you invest, the payment is absolutely fixed. However, as time goes on, you can again buy an immediate anuity when you are oolder and interest rates are either higher or lower. As you age, your life expectancy will decrease but how interest rates will change is uncertain. Sincwe you never know which way interest rates will go, it may be best to divide your finds for immediate fixed anuities into portions.
One way you can control your fixed annuity payments is to ladder them. You do that by taking the total amount of investment you want to set aside for 'eventual' annuity purchases and mentally divide it up into… say 5 equal parts. You'll consecutively convert or annuitize your fixed annuities, each of those parts every 1, 2, 3, or more years into a immediate fixed annuities. The time between consecutive conversions depends on how long you think you'll live and a belief that interest rates will increase.
Those subsequent conversions into fixed annuity payments can increase because your life expectancy will decrease as you age and hopefully interest rates will increase too. If rates stay the same, your decreased life expectancy should give you higer payments form the annuities that you purchase at later dates.
Laddering is a good idea if interest rates seem historically low, and you'll be converting each part over a time span that should allow rates to change – hopefully rise. If, on the other hand, interest rates are historically high, then perhaps you may want to annuitize it all right away.
The longer between each conversion to immediate fixed annuities, the better the effect from your decrease life expectancy. And if interest rates stay pretty steady, you should benefit from a laddering approach.
Interested in what the fixed annuities rates are now? Check current annuity rates.
Note that immediate fixed annuities once annuitized cannot be surrendered for value. Income from deferred annuities is taxed as ordinary income and withdrawals prior to age 59 ½ are subject to a 10% penalty. Income from annuitization is taxed part as ordinary income and part as return of capital. Any guarantees are based on the claims paying ability of the insurance company. Annuities should be considered long term investments. Fixed annuities are insurance products and subject to insurance related fees and expenses.
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