Annuity Laddering: Three Strategies to Optimize Rates and Income

What Is Annuity Laddering?

If you have $200,000 to allocate to annuities and you put it all into a single 5-year MYGA, you are making a one-time bet on today’s rates. If rates rise next year, your money is locked in at the lower rate. If you need access before the 5 years are up, you face surrender charges.

Laddering solves both problems. Instead of one large purchase, you divide your allocation across multiple annuities with different terms. Each “rung” of the ladder matures at a different time, giving you a predictable schedule of liquidity events where you can reinvest at then-current rates, convert to income, or withdraw funds penalty-free.

Three core benefits of laddering

1. Reduces rate risk. By spreading purchases across different terms, you avoid the all-or-nothing gamble of a single purchase date. Some rungs will capture higher rates; some may capture lower rates. The average tends to smooth out timing mistakes.
2. Provides scheduled liquidity. Each rung matures on its own timeline. You always have a maturity approaching within 1–3 years, giving you access to funds without paying surrender charges.
3. Captures rising rates. When short-term rungs mature, you reinvest at then-current rates. In a rising rate environment, each reinvestment captures a higher rate, pulling your overall yield upward over time.

Strategy 1: MYGA Ladder — Rate Optimization

A MYGA ladder is the most common annuity laddering strategy. You purchase Multi-Year Guaranteed Annuities with different terms — typically 2, 3, 5, and 7 years — so that one rung matures every 1–2 years. As each MYGA matures, you reinvest into a new long-term MYGA, extending the ladder and capturing the then-current rate.

Worked example: $200,000 MYGA ladder

Suppose you have $200,000 to allocate in early 2026. Rather than putting all $200,000 into a single 5-year MYGA, you build a 4-rung ladder:

Rates shown are illustrative for early 2026. Actual MYGA rates vary by carrier, state, and premium amount. Guarantees are subject to the issuing insurer’s claims-paying ability.

What happens at each maturity

When Rung 1 matures in 2028, you have $55,260 available penalty-free. You have three options:

1. Reinvest in a new 7-year MYGA at 2028 rates, extending the ladder out to 2035. This is the standard ladder maintenance strategy.
2. 1035 exchange into an income annuity (SPIA or DIA) to begin converting accumulation into guaranteed income — tax-free.
3. Withdraw the funds for personal use. Gains are taxable as ordinary income, but you avoid surrender charges because the term has ended.

In 2029, Rung 2 matures. You make the same decision. And so on. Every 1–2 years, a maturity event gives you an opportunity to reassess rates, adjust your strategy, or access funds.

Best for

• Savers focused on rate optimization and maximizing guaranteed yield
• People who want periodic liquidity without paying surrender charges
• Investors who believe rates may rise and want to capture them incrementally
• Retirees who may need to convert to income at some future date but are not ready yet

Strategy 2: Income Ladder — Growing Retirement Income

An income ladder uses Deferred Income Annuities (DIAs) and/or Single Premium Immediate Annuities (SPIAs) with staggered income start dates. Rather than turning on all your income at once, you create layers that activate at different ages, producing income that grows as you age.

This is the annuity equivalent of creating your own pension with built-in raises. Because income annuity payouts increase significantly when the start date is delayed (the insurer has longer to invest, and fewer expected payment years), each successive rung pays a substantially higher monthly amount per dollar of premium.

Worked example: $300,000 income ladder, starting at age 60

Suppose you are 60 years old and want guaranteed income that grows over time to keep pace with rising expenses:

Income amounts are illustrative for a 60-year-old male, life-only payout, non-qualified funds. Actual payouts vary by carrier, gender, payout option, and state. Guarantees depend on the issuing insurer’s claims-paying ability.

How income grows over time

From age 65 to age 75, your guaranteed income nearly quintuples — from $710/month to $3,340/month — on the same $300,000 total premium. This creates a natural inflation hedge: your income grows during the years when healthcare and long-term care costs typically rise fastest.

Best for

• Retirees who want growing income that increases naturally over time
• People concerned about inflation eroding purchasing power in later retirement
• Those who want guaranteed lifetime income but do not need maximum income from day one
• Retirees who have other income sources (Social Security, part-time work) covering early retirement years

Strategy 3: Hybrid Ladder — Growth Now, Income Later

A hybrid ladder combines accumulation annuities (MYGAs) and income annuities (SPIAs/DIAs) in a single coordinated strategy. You start with MYGAs for tax-deferred growth. As each MYGA matures, you 1035 exchange the proceeds into an income annuity, gradually converting your savings into guaranteed lifetime income — all tax-free.

This is the most flexible laddering approach and is especially well-suited for people who are 5–15 years from retirement. The MYGA phase grows your money at guaranteed rates; the income phase converts it into a personal pension. The 1035 exchange bridge between them avoids any taxable events along the way.

Worked example: $400,000 hybrid ladder, age 57

Suppose you are 57 years old, plan to start drawing income at 65, and want to maximize the dollars flowing into income annuities:

All rates and income amounts are illustrative. MYGA rates vary by carrier and term. Income annuity payouts vary by carrier, age at income start, gender, and payout option. Guarantees depend on issuer claims-paying ability. 1035 exchange rules and eligibility should be verified with your advisor.

How the hybrid ladder plays out

Best for

• People 5–15 years from retirement who want growth now and income later
• Investors who want to avoid locking into income rates years before they need income
• Those who value the flexibility to adjust their income start dates as retirement approaches
• Tax-conscious planners who want to maximize the 1035 exchange benefit

Laddering vs. Single Purchase

Laddering is not always the right choice. Here is an honest comparison of the tradeoffs:

How to Build Your Annuity Ladder

Step 1: Determine your total allocation

Decide how much of your overall portfolio to allocate to annuities. This should be the portion of your savings where you want guaranteed returns and are comfortable with limited liquidity during each contract term. Common allocations range from $100,000 to $1,000,000+ depending on your total retirement savings.

Step 2: Choose your strategy

Select the laddering approach that matches your goal:

• MYGA ladder — if your primary goal is rate optimization and maintaining flexibility
• Income ladder — if you want guaranteed income that grows over time
• Hybrid ladder — if you want growth now and income later, connected by tax-free 1035 exchanges

Step 3: Select terms and start dates

For a MYGA ladder, choose terms that create a regular maturity schedule (e.g., 2, 3, 5, and 7 years). For an income ladder, choose income start dates spaced 5 years apart to create meaningful income steps. For a hybrid, align MYGA maturities with your planned income start dates.

Step 4: Compare carriers for each rung

Every rung is an independent purchase decision. Compare rates (or income payouts) from multiple carriers for each rung. You do not need to use the same carrier for every rung — in fact, diversifying across 3–4 carriers with A.M. Best A- or better ratings provides additional safety through carrier diversification.

Step 5: Execute and document

Purchase each rung, documenting the carrier, term, rate, maturity date, and planned action at maturity. Keep a simple tracking spreadsheet with these columns plus the surrender schedule for each contract.

Step 6: Review annually

At least once per year, review your ladder. Confirm maturity dates, compare current rates to your locked-in rates, and adjust your planned actions if your circumstances have changed (earlier retirement, different income needs, health changes, etc.).

Tax Considerations for Annuity Laddering

Tax-deferred compounding within each rung

Each MYGA in your ladder grows tax-deferred. Interest compounds without the annual tax drag that affects CDs and taxable bonds. For a saver in the 24% federal bracket, this means your effective yield is the full stated rate rather than the after-tax rate you would earn in a taxable account.

Staggered taxable events

One underappreciated benefit of laddering is tax bracket management. If you hold a single $400,000 MYGA and cash it out at maturity with $100,000 in gains, all $100,000 is taxable in a single year — potentially pushing you into a higher bracket. With a ladder, gains are realized over multiple years as individual rungs mature, spreading the taxable income across several tax years and potentially keeping you in a lower bracket each year.

1035 exchanges preserve deferral

When a MYGA rung matures and you 1035 exchange it into a new MYGA or income annuity, no taxes are due. The gains carry over to the new contract and remain deferred. This is particularly powerful in a hybrid ladder: your money grows tax-deferred in MYGAs, then converts tax-free into income annuities. You only pay taxes as you receive income — and only on the gain portion (for non-qualified funds, the exclusion ratio applies).

Qualified vs. non-qualified ladders

Annuity ladders can be built with either qualified money (IRA, 401(k) rollovers) or non-qualified money (after-tax savings). The laddering mechanics are the same, but the tax treatment differs:

• Non-qualified: Only gains are taxable. Cost basis is returned tax-free. The exclusion ratio in income annuities allocates each payment between taxable gain and tax-free return of principal.
• Qualified: All distributions are fully taxable as ordinary income (both principal and gains), since contributions were tax-deductible. Deferral still benefits compounding, but the eventual tax rate applies to 100% of withdrawals.

Related Guides & Tools

• Annuity vs. CD — Compare MYGAs and CDs on rates, taxes, safety, and liquidity before deciding how to allocate each rung.
• 1035 Exchange Guide — Essential reading for hybrid ladders: how to move between annuities tax-free at each maturity.
• Current MYGA Rates — Compare live rates from 60+ carriers, filtered by term. Use this to price each rung of your MYGA ladder.
• Find an Advisor — Get personalized help designing a ladder strategy tailored to your goals, timeline, and tax situation.