Annuity Ladder can be defined as an investment strategy for the retirees or those who are absolutely near their retirement. Annuity Ladder entails the purchase of some immediate annuities over a time period that spans for a year so that it can provide a guaranteed income minimizing the interests rate risk associated with the annuities. With the help of annuity ladder the retirees or related people can maintain some of the portion of their income in the form of equities and bonds and use some other portion to periodically purchase the annuities for investment. Retirees should purchase annuities from different insurance companies as it involves less risk and minimize the chance of potential loss if the certain insurance company goes under. This strategy will help the retirees to earn high profit by involving low or minimum risk.
Retirees must avoid locking the interest rate while purchasing the annuities. If the interest rate are low at the time of purchasing annuities the retirees must not lock the interest rate as it may increase in later stage of the investment period. Since no one including the investor and the annuity issue and the insurance company can predict the rate of interest in the upcoming days so by purchasing annuities for over a year period time help the investor to minimize the risk of low returns on the investment. An annuity ladder can also earn some tax free income for the retiree by implementing or conducting Roth IRA conversion strategy.
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