Due to countless medical advances and healthier lifestyles, U.S. retirees are living increasingly longer lives. As a matter of fact, recent life expectancy estimates show that a healthy 65-year-old man has a 24% chance of living to the age of 90 or older, and a healthy woman has a 35% chance of living that long.

While this is great news, many people grow more and more anxious as they approach retirement. That’s because they’re forced to ask themselves tough questions like, “Do I have enough savings to enjoy a comfortable retirement?” or “What if I outlive my retirement funds?”

If you find yourself among these thousands of concerned retirement savers, you may want to look into a technique called “annuity laddering.” An extremely effective saving strategy, annuity laddering could be your key to making retirement income last a lifetime.

Step up to better savings

Fixed income annuities are extremely popular investments because they provide a stream of retirement income that’s guaranteed to last the rest of your life. Unfortunately, while these annuities may pay out enough to cover monthly necessities, they don’t always provide enough income for a comfortable retirement.

Plus, if you invest in just one fixed income annuity, there’s often nothing left over to leave your loved ones. In an attempt to beef up their savings, some investors combine fixed annuities with other investments, such as stocks and bonds.

However, if you really want to accelerate your retirement savings, you may want to consider laddering into fixed income annuities. This strategy could increase your saving potential and help you generate enough money to leave a legacy for your heirs.

How does it work?

Laddering annuities involves spreading out your annuity purchases over time as opposed to making a single, lump-sum annuity purchase. If you purchase one fixed income annuity, the amount of your eventual income payout will be determined by the interest rates at the time you purchased the investment. If rates are high when you purchase the annuity, this could result in a healthy payment amount in the future.

However, if interest rates are low or even unstable at the time of your lump-sum annuity purchase, you’re probably destined to receive much smaller payouts after retirement. Let’s say interest rates climb after you purchase your lump-sum annuity—you will miss out the opportunity to take advantage of these higher rates because you have already purchased the annuity.

On the other hand, if you stagger your annuity purchases over time, you may be able to find the perfect balance between fluctuating interest rates. Plus, by “laddering” your annuity purchases, you can adjust your savings strategies based on your current financial situation.

As a matter of fact, some studies show that laddering into fixed income annuities can be an extremely effective retirement saving method. In 2007, MassMutual Financial Group released a study showing that even in an “up” market, annuity laddering could increase an investor’s odds of building long-term wealth and income security as compared to someone investing in just stock and bond investments. The study also showed that including fixed income annuities in retirement savings can provide more funds for investors who live beyond their life expectancy.

Talk to a pro

Of course, as with any investment decision, you should talk with a financial professional before you try annuity laddering. While this strategy may help you reduce purchase rate risk and offer you more flexibility, you should also remember that annuities are subject to charges and fees while non-annuity investments are not.

Your financial advisor can help you determine whether annuity laddering is an appropriate option for your unique situation.

* Annuity withdrawals are generally taxed as ordinary income and may be subject to surrender charges, in addition to a 10% federal income tax penalty if made prior to age 59 1/2. The guarantees and payments of income are contingent on the claims paying ability of the issuing insurance carrier.

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