Don’t Lock It All In: The Case for Laddering Fixed Annuities 

The Interest Rate Dilemma Facing Retirees 

Fixed annuities have become an attractive option again, with yields not seen in more than a decade. After spending much of the 2010s below 4%, average multi-year guaranteed annuity (MYGA) rates climbed into the mid-5% to low-6% range in 2023–25—levels last seen before the financial crisis. 

That rise has revived client interest but also introduced new challenges. Should clients lock in now, or stay flexible in case rates rise further? Committing everything to a single term could limit future opportunities. Laddering offers a way to participate in today’s higher rates while maintaining control over timing and liquidity. 

How Laddering Works 

Laddering fixed annuities follows the same principle as laddering CDs or bonds: dividing a lump sum into multiple contracts with staggered maturities. For example, instead of investing $300,000 in a single 5-year fixed annuity, a client could purchase three contracts of $100,000 each with 3-, 4-, and 5-year terms. 

As each contract matures, the proceeds can be reinvested at the current rates, used for income, or kept liquid. The goal is to avoid locking in all at once—and to create built-in flexibility as rates evolve. 

This strategy is particularly appealing in environments where rate direction is uncertain, or when clients anticipate needing funds at different points in retirement. 

 Balancing Yield, Liquidity, and Timing 

When discussing laddering with clients, advisors can frame it as a way to balance three key trade-offs: 

• Yield: Under normal yield curve conditions, longer-term contracts generally offer higher crediting rates—but laddering ensures not all assets are tied up at today’s terms. 

• Liquidity: With maturities spread out over time, clients gain regular access to funds without triggering surrender charges. 

• Timing: Ladder maturities can be aligned with specific income milestones—such as supplementing withdrawals until Social Security or pension benefits begin. 

In essence, laddering creates interest rate diversification—spreading exposure across multiple rate environments rather than betting everything on one moment in time. 

Communicating the Value to Clients 

Clients often view annuities as static, one-time commitments. Laddering reframes that idea, showing that annuities can be used dynamically and strategically. 

A simple timeline can help visualize the concept: one portion matures each year, offering the chance to reinvest, spend, or save. Advisors might also compare laddering to dollar-cost averaging—except instead of smoothing market risk, it smooths interest rate risk. 

Even a modest ladder of two or three contracts can make a noticeable difference in flexibility and client comfort, especially for those nervous about locking in all their savings at once. 

A Strategy for Uncertain Times 

Today’s rate environment rewards action—but also patience. Laddering lets advisors help clients take advantage of historically strong yields while keeping options open for the future. 

It’s a practical middle path between seizing opportunity and preserving flexibility—helping clients feel confident that their guarantees are working for them, not limiting them. 

Takeaways 

• After a decade below 4%, average MYGA rates reached the mid-5% to low-6% range in 2023–25, reviving client interest in fixed guarantees. 

• Laddering fixed annuities spreads investments across multiple terms to balance yield, liquidity, and timing. 

• Under normal yield curve conditions, longer-term contracts offer higher crediting rates—but laddering ensures adaptability if rates change. 

• Position laddering as “interest rate diversification,” helping clients stay protected yet flexible in an uncertain rate environment.