Retirement income planning can be a bit of a puzzle these days thanks to low interest rates.

One of the best options for meeting your income needs may be to ladder annuities. As with bond ladders, annuity ladders can help you to navigate changing interest rates to your advantage. They also allow you to take advantage of the higher payout levels that become available as you age: the shorter your life expectancy, the greater annuities’ payout.

If you’re a typical retiree, you might implement an annuity ladder by using 25% of your savings to buy an annuity at age 65. The remaining savings can stay within a conventional investment portfolio, where you should limit your annual withdrawals to 4%.

At age 70, you may use another 25% of your savings to buy a second annuity. By this time, interest rates may be higher—and because annuity owners’ age helps determine the payout, the return will be better.

If you are still healthy at age 75 or 80, you could consider buying yet another annuity, which can serve as insurance against outliving your money. One of the benefits of an annuity ladder is that it can help you defer your Social Security election until age 70, when you are eligible for the maximum benefits.

On the other hand, one of the drawbacks of this strategy is that by only investing a portion of your savings in annuities at first, you will forgo the extra guaranteed income early on. However, the balance of your savings can still be invested in the markets so that it has an opportunity to grow.

If you want to transfer your retirement savings’ risk completely—transferring it all into guaranteed income—you could employ a different kind of ladder. In this version of laddering, you divide your money into multiple “buckets.” You invest the first bucket into an annuity that pays out first—either immediately if you need the money right away, or in a few years if you can wait.

At the same time, you will invest the other buckets in annuities with successively longer surrender periods; the annuity issuer will offer you successively higher crediting rates on each. If interest rates are rising, you can cash out of each annuity after its surrender period and buy a new, higher-rate fixed annuity.

It may be a good idea to buy each annuity from a separate company as insurance against any one company failing. Annuities are guaranteed by individual states, and often those guarantees are limited to $100,000.

Since annuities can have lockup periods, it’s important to ensure you have enough savings to afford the laddering strategy. If you’d like to learn more about laddering annuities, please don’t hesitate to contact me.