Strategy Two: Laddering Annuities for Rising Income

The second strategy involves purchasing more than one annuity with the intention of starting income from each at different times. This is commonly referred to as annuity laddering, and it’s a more flexible — though more involved — way to build a rising income stream in retirement.

Here’s how it works in principle. With the exception of single premium immediate annuities, most annuities that offer a guaranteed income benefit will accumulate a higher payout the longer you defer taking income. An annuity you purchased today but don’t draw income from for 10 years will generate a meaningfully higher payment than the same annuity drawn at year five. That increase comes from built-in accumulation guarantees and, in many cases, age-banded payout rates that reward you for waiting.

So instead of putting all your money into a single annuity and starting income at one point, you split the purchase across two or more annuities and plan to start income at staggered intervals.

A Simple Example

Imagine purchasing two annuities with the plan to start income from the first one 10 years from now and the second one 15 years from now. When year 10 arrives, you turn on income from the first annuity. That income covers your needs at that point. Five years later, you turn on the second annuity, which has had an additional five years to accumulate a higher benefit. The combined income from both annuities is now higher than what you would have received if you’d put the full amount into a single annuity and started all of it at year 10.

Hypothetical example for illustrative purposes only. Individual results vary based on specific products, timing, and personal circumstances.

The beauty of this approach is the optionality it creates. If you get to year 10 and find that the income available from the first annuity is actually more than you need, you can start taking income from only that one and let the second annuity continue to grow. You haven’t committed all your guaranteed income to a single start date.

And here’s the part that surprises most people: if you get to year nine and decide you actually need all the income right now, the combined payout from both annuities started at year nine is essentially the same as what you would have received from a single annuity purchased with the total amount. You haven’t given anything up by splitting the purchase. You’ve only gained flexibility.

Mixing Annuity Types

Laddering doesn’t require buying multiples of the same product. You can combine different types of annuities depending on what each stage of your retirement requires. For instance, someone entering retirement might purchase a single premium immediate annuity to cover their core income needs for the first five to seven years — a period when most retirees feel the most uncertainty about how the financial side of retirement actually works in practice. Meanwhile, a deferred annuity purchased at the same time can be accumulating a higher income benefit in the background, ready to activate once that initial period is over.

This approach lets you half-step into retirement rather than committing to a single income strategy on day one. After five years of living on the SPIA income, you have real experience with your spending patterns, your healthcare costs, and how your other assets are performing. That knowledge makes the next set of decisions far more informed. If you’d like to explore how different annuity types might work together, the specifics matter a great deal — and they vary by product, carrier, and individual circumstances.

[wpcode id="4722"]