Business is booming.

Do Annuity Ladders Really Make Sense For Retirees In A Rising Rate Environment?


Annuity laddering involves staggering the purchase of annuities over a period of time. A laddered annuity differs from a deferred annuity, which involves a single purchase but with payments deferred for some period selected by the purchaser. Both the laddered and deferred annuities considered here have fixed payments – variable annuities are a completely different ballgame.

The logic of laddering is that annuity payment amounts rise with age, and they also rise with interest rates. Indeed, the recent flurry of interest in laddering arises from the widespread belief that interest rates will rise this year.

However, the logic of laddering is far from conclusive.

  • Seldom is laddering compared to the most plausible alternative, which is to place part of the designated assets into a deferred annuity.
  • Laddering proponents ignore the question of what is done with the earnings on assets that are retained for future annuity purchases. The earnings could be accumulated so as to enhance the future annuity amounts, they could be used as spendable funds, or some combination of the two.
  • Also ignored are the consequences if interest rates don’t rise as expected.

These issues are confronted in this article, which employs models developed by my colleague Allan Redstone. The models are used here to show how the spendable funds available to a 65-year-old man with financial assets of $600,000 is impacted by laddering with an annuity purchased now, another one purchased after 3 years, and a third one purchased after 6 years. The ladder is compared to a single deferred annuity purchased now on which the deferment period is 10 years.

Chart 1 compares the ladder with the deferred annuity in today’s market. The rate of return on the financial assets used to purchase both annuities is assumed to be 6.1%, which is the historical median on a 25%-stock/75% fixed income portfolio over 925 past 10-year periods. The current rate of return on the annuity is assumed to be 1.5% percent, about the same as 6/7-year Treasuries, based on an annuity pricing model developed by my colleague Allan Redstone, which has been checked against current annuity prices. All annuities are priced with a COLA increase of 2% a year but no cash refund rider.

As shown in Chart 1, the ladder provides significantly lower spendable funds than the single deferred payment alternative during the first 6 years, or until the last rung of the ladder kicks in. This assumes that the earnings on the assets remaining are accumulated and used for larger annuity purchases. If the assets on the ladder are instead withdrawn as spendable funds, the shortfall during the first three years is eliminated but during the remainder of the retiree’s life, the single deferred payment alternative generates more.

Bottom line, in a stable rate environment the 3-year/6-year ladder is inferior to a single annuity with payment deferred 10 years. That leaves the question of how rising interest rates shift the balance.  I ran a number of rate increase scenarios and selected a rate increase of 3% spread out over 18 months to compare the ladder with the reference.

Rising interest rates affect both the reference case and the ladder. With the reference case, I assume that the asset earnings in excess of the amounts required to finance spendable funds during the first 10 years are used to buy an immediate annuity which results in a jump in spendable funds at the end of the deferment period. With the ladder, in contrast, it is critically important whether the asset earnings during the early years are retained to make future annuity purchases larger or drawn out as spendable funds.

If the asset earnings are retained, the future payments would be substantially higher than the reference after the last annuity is purchased but substantially lower before then. If the asset earnings are paid out, payments in the first 10 years would be higher than the reference, and slightly lower thereafter. These points are illustrated by Chart 2.

In sum, with stable interest rates, annuity laddering is a loser relative to an immediate annuity with payment deferred 10 years. If rates rise after annuities are purchased, the comparison is muddled by whether or not purchasers using ladders draw down excess earnings, but overall laddering is not a better option.

I view this article as the first step in the process of integrating ladders into retirement plans. Stay tuned.

Source link

  1. UgoVow says
  2. Briereomb says

    buying cialis generic You might even decide to go with the best brand if that is the better Cialis available

  3. Seignew says

    I ve heard from a couple of them stromectol coupon

  4. Wiqvjo says

    order generic levaquin 250mg buy levaquin 250mg online cheap

  5. Wubeqg says

    purchase avodart pill cost avodart zofran cheap

  6. Piftqo says

    aldactone oral order spironolactone 25mg for sale fluconazole oral

  7. Nhseag says

    ampicillin cheap brand ampicillin 500mg erythromycin 250mg pills

  8. Qinovo says

    sildenafil 100mg over the counter tamoxifen over the counter robaxin 500mg uk

  9. Prfstf says

    order suhagra 50mg online cheap buy sildenafil pill estradiol 2mg without prescription

  10. Tojdli says

    buy lamictal 200mg sale minipress over the counter buy tretinoin cream for sale

  11. Iuteuf says

    tadalafil 10mg canada order avanafil 100mg generic order diclofenac 50mg sale

  12. Gxukvh says

    buy accutane 10mg generic isotretinoin 10mg ca cheap zithromax 250mg

  13. Ffxvlc says

    order indocin 75mg purchase lamisil online trimox 500mg cost

  14. Trllwk says

    purchase anastrozole without prescription arimidex 1mg oral pfizer viagra 50mg

  15. Oqnpcg says

    acheter 40mg tadalafil en ligne acheter 10mg du tadalafil acheter 50mg du sildenafil

  16. Wurzfq says

    buy deltasone tadalafil citrate order sildenafil 50mg without prescription

  17. Oirrqi says

    tadalafil 20mg fГјr frauen original tadalafil 20mg rezeptfrei sicher kaufen sildenafil 200mg kaufen generika

  18. Uncoomb says

    CONSORT diagram for NCIC Clinical Trials Group MA tamoxifen and weight gain More sophisticated TEG algorithms haven t been validated in prospective RCTs in the context of ICU patients with cirrhosis

  19. Mjxuam says

    doxycycline 200mg pills levitra without prescription lasix 100mg us

  20. Xdurxs says

    clonidine 0.1 mg cheap cost clonidine 0.1 mg buy spiriva 9mcg without prescription

  21. Qevzub says

    order buspar 5mg generic purchase phenytoin pills ditropan usa

  22. Coxrei says

    terazosin 1mg price cheap terazosin 5mg buy azulfidine sale

  23. Ebvdif says

    purchase fosamax without prescription order alendronate 35mg generic order pepcid

  24. Kpkzak says

    order benicar pills depakote 500mg without prescription order diamox 250 mg online cheap

  25. Gwasrx says

    prograf for sale online buy requip 1mg pill order generic ursodiol 300mg

  26. Cbybsu says

    purchase imdur for sale digoxin us purchase micardis for sale

  27. Arocbt says

    zyban 150 mg for sale purchase zyrtec pill order seroquel for sale

  28. Gofhrr says

    order molnupiravir prevacid us buy generic prevacid 15mg

  29. Jggrua says

    order sertraline 50mg Lowest price for viagra order sildenafil 50mg generic

  30. Icuhuj says

    imuran order generic salbutamol 100 mcg sildenafil pill

  31. Hibqda says

    tadalafil 40mg cheap pfizer viagra 100mg price order generic sildenafil 50mg

  32. Mvbbyb says

    order cialis 40mg pills order generic tadalafil generic symmetrel 100 mg

  33. Xefzif says

    generic naltrexone 50mg aripiprazole 30mg tablet abilify us

  34. Grqote says

    buy avlosulfon 100mg generic nifedipine 30mg oral buy aceon 4mg generic

  35. Sjqmvj says

    buy provera 5mg pill praziquantel 600mg pills cyproheptadine 4 mg us

  36. Nqobsq says

    modafinil sale stromectol order online buy ivermectin 3 mg for humans

  37. Lppkzz says

    order fluvoxamine ketoconazole 200 mg sale glipizide online order

  38. Uirgjp says

    order accutane 20mg for sale purchase prednisone pill order prednisone 5mg generic

  39. Xmdfnz says

    buy nootropil 800mg generic sildenafil 100mg generic canadian viagra

  40. Iqaiah says

    azithromycin ca buy neurontin 100mg sale gabapentin 600mg cost

  41. Hjzhgk says

    best cialis sites online generic tadalafil viagra medication

  42. Vktnqb says

    lasix price buy doxycycline pills plaquenil 400mg pill

  43. Okyzdp says

    buy cialis betnovate 20 gm drug buy anafranil 50mg online

  44. Okshok says

    purchase chloroquine without prescription purchase cenforce online cheap cost baricitinib 2mg

  45. Raxjnb says

    buy glycomet 500mg pills order glycomet 500mg without prescription buy generic cialis 20mg

  46. Kstzrm says

    purchase zyprexa generic generic zyprexa buy diovan 160mg generic

  47. Vhnnfd says

    order clozaril 50mg for sale clozapine us buy generic dexamethasone

  48. Xsjucp says

    order omeprazole 20mg for sale pre written essays for sale playing poker online

  49. Ffdicq says

    zyvox generic blackjack free online quick hits free online slots

  50. Jhmxtl says

    metoprolol over the counter metoprolol 50mg cheap levitra 20mg brand

  51. Enbcvc says

    essay helpers best casino slot games poker online sites

  52. Tkhawq says

    thesis website cost sildenafil 50mg buy sildenafil without prescription

  53. Bcpzdb says

    order clomiphene 50mg clomid drug best online casino

  54. Gumomy says

    brand aristocort purchase claritin pill desloratadine without prescription

  55. Slagcs says

    buy dapoxetine for sale buy cytotec 200mcg online order synthroid 150mcg pills

  56. Begbzd says

    buy generic tadalafil 40mg sildenafil 100mg usa order sildenafil 50mg online

  57. Nmbxux says

    order orlistat 120mg sale xenical medication order zovirax 800mg pills

  58. Nlywgk says

    cialis pills 20mg clopidogrel 150mg usa buy plavix 150mg pills

  59. Bfgurz says

    methotrexate 5mg sale buy methotrexate 5mg sale brand metoclopramide 10mg

  60. Anaczw says

    buy generic domperidone 10mg order domperidone 10mg online flexeril medication

  61. Zyimbc says

    generic cozaar topiramate uk order topamax sale

  62. Jzjbww says

    purchase lioresal without prescription ozobax brand toradol 10mg canada

  63. Brgiiq says

    buy generic imitrex imitrex tablet purchase avodart generic

  64. Kfkobt says

    buy zantac 300mg buy celecoxib 200mg buy celebrex 100mg

  65. Ylujfm says

    free slot machine games free online roulette casino free spins no deposit

  66. Yjpwyt says

    tamsulosin 0.4mg without prescription buy flomax 0.2mg sale spironolactone 25mg pills

  67. Omdaeq says

    order cialis 10mg online cheap order cialis 40mg without prescription generic ciprofloxacin

  68. Kvclut says

    cost flagyl 200mg generic metronidazole 200mg buy bactrim 480mg pill

  69. Ertvcj says

    fluconazole 100mg cost order sildenafil 100mg online viagra price

  70. Fkjfzn says

    order cialis 20mg for sale tadalafil 20mg uk canadian viagra

  71. Lygekj says

    buy viagra 50mg pills brand name cialis us cialis sales

  72. royamma says

    36 mmol in anhydrous Methanol, was added dropwise to a solution of 116 3 lasix and potassium levels

  73. Wctkko says

    cost cefuroxime 500mg order cefuroxime 500mg generic order robaxin 500mg online cheap

  74. Mokvev says

    online blackjack for real money usa order tadalafil 20mg sale cialis 40mg oral

  75. Ycwfey says

    desyrel sale buy sildenafil 50mg generic sildenafil 50mg drug

  76. Erhztd says

    sildenafil fast shipping purchase estrace generic buy lamotrigine 200mg sale

  77. aeronterN says

    does daily viagra lower blood pressure nilotinib will increase the level or effect of ketoconazole by affecting hepatic intestinal enzyme CYP3A4 metabolism

  78. Qjwgvg says

    sildenafil 100 mg cialis viagra sales buy tadalafil 20mg online cheap

  79. Axqnsk says

    play poker online for real money crazy poker games tadalafil canada

  80. Rydtyz says

    azithromycin 500mg without prescription zithromax online order neurontin 800mg usa

  81. Zkefie says

    real money casino hard rock casino online brand modafinil 100mg

  82. Xximyk says

    order furosemide for sale lasix us oral hydroxychloroquine

  83. Rispxj says

    order prednisone 40mg pills mebendazole order online mebendazole generic

  84. Cnccdk says

    buy generic fildena fildena brand cheap budesonide

  85. Szdgsl says

    brand tretinoin cream tretinoin gel tablet avanafil cheap

  86. Nqjnbh says

    tadalafil 20mg ca voltaren 50mg tablet buy indocin 50mg pills

  87. Diwkcb says

    buy terbinafine amoxicillin 500mg oral buy trimox 250mg generic

  88. Goofog says

    biaxin 500mg canada buy meclizine 25mg buy antivert 25 mg sale

  89. Szghpb says

    spiriva 9 mcg pills buy minocycline 50mg online terazosin cheap

  90. Ufvxuy says

    actos 15mg usa sildenafil citrate 50mg viagra brand

  91. Ymdigp says

    order cialis sale Us cialis sales casino real money

  92. Mxwapo says

    casino games real money free online poker games online blackjack for real money

  93. Eocrxm says

    real money online casino real money poker online blackjack online betting

  94. Cqyeeg says

    online casino gambling buy my essay professional paper writers

  95. Nfzgqc says

    order ramipril 10mg pills etoricoxib generic generic etoricoxib 120mg

  96. Fapsfa says

    write research papers arava 10mg uk order sulfasalazine for sale

  97. Cewqmm says

    benicar generic purchase calan for sale divalproex 500mg pill

  98. Qynmmb says

    diamox 250 mg over the counter order acetazolamide 250mg without prescription cost imuran

  99. Brnynp says

    buy digoxin 250 mg sale lanoxin usa molnunat oral

  100. Eoronu says

    amoxil 250mg canada amoxil sale ivermectin 12

  101. Qctpqj says

    brand coreg coreg 25mg uk amitriptyline 10mg pills

  102. Gtrkcy says

    buy dapoxetine 30mg generic dapoxetine 90mg for sale motilium 10mg sale

  103. Uvhjhu says

    buy fosamax online cheap cost nitrofurantoin 100mg motrin 600mg tablet

  104. Dzfseh says

    indomethacin 50mg uk buy cenforce 50mg for sale order cenforce 50mg sale

  105. Ehkttr says

    buy nortriptyline 25 mg online nortriptyline 25 mg sale paxil usa

  106. Gngbxs says

    order generic doxycycline 100mg generic doxycycline 200mg medrol 16 mg without a doctor prescription

  107. Vrxpxn says

    buy pepcid 40mg without prescription pepcid 40mg sale remeron 30mg cheap

  108. Guxuladut says

    paying large amounts of money for unproven treatment options best site to buy cialis online Examples of radiation include X rays, gamma rays, and charged particles

  109. Fbbioc says

    buy tadacip 20mg pills order clopidogrel 150mg generic order amoxicillin 250mg sale

  110. Cyougr says

    cost ropinirole 1mg requip 1mg brand buy labetalol sale

  111. Yfiitt says

    purchase tricor pills viagra 50mg cheap buy sildenafil online cheap

  112. Lxdzbm says

    order esomeprazole 20mg for sale clarithromycin uk furosemide online buy

  113. Jbuxwm says

    buy cialis 40mg without prescription Generic cialis sale viagra 25mg price

  114. Bukmzl says

    buy minocycline online minocycline pill buy hytrin online

  115. Xkrsvo says

    cialis coupons levitra dosage where to buy otc ed pills

  116. Hslcvi says

    glycomet online order metformin generic nolvadex 20mg generic

  117. Lhoeuw says

    buy modafinil 200mg stromectol 12mg uk promethazine 25mg oral

  118. Uyvchq says

    buy prednisone 20mg buy isotretinoin without prescription amoxicillin 1000mg cheap

  119. Smrtho says

    accutane 20mg oral cheap deltasone 20mg cost acillin

  120. Nxbspr says

    low cost ed pills pregabalin drug purchase finasteride for sale

  121. Ljhloj says

    ivermectin 3mg without prescription deltasone cheap order deltasone 5mg generic

  122. Zzopum says

    buy zofran 8mg online cheap order amoxicillin 1000mg for sale bactrim pill

  123. Hfgmuz says

    isotretinoin buy online zithromax pills zithromax for sale

  124. Yklsrj says

    best antihistamine for allergic rhinitis order synthroid amoxiclav oral

  125. Bkixba says

    prednisolone 10mg usa generic prednisolone 5mg lasix ca

  126. Yhjxwz says

    provigil over the counter lopressor 50mg price lopressor 50mg uk

  127. Eemuoc says

    buy doxycycline 100mg online cheap buy levitra 10mg for sale order acyclovir pill

  128. Soioxo says

    avodart 0.5mg us buy cephalexin 250mg pill order orlistat 120mg online

  129. Jcmnck says

    propranolol brand order carvedilol 25mg without prescription order coreg 6.25mg generic

  130. Zqyaph says

    buy imuran 50mg order naprosyn 500mg sale brand naproxen 500mg

  131. Vkjduc says

    buy oxybutynin sale buy tacrolimus sale order oxcarbazepine generic

  132. Ibkpuu says

    buy cefdinir 300 mg online buy protonix 40mg sale pantoprazole 20mg brand

  133. Muhljb says

    simvastatin order order promethazine 25mg online cheap sildalis pills

Leave A Reply

Your email address will not be published.