Annuity income floors and ladders
Covering your essential expenses with guaranteed lifetime income.
About a 5-minute read
What it is
An income floor is a retirement income approach that covers your essential expenses (housing, food, healthcare, insurance, utilities) with guaranteed income sources, such as Social Security, pensions and income annuities, and uses other savings for everything else.
Some people build the floor gradually with an annuity ladder: buying income annuities in stages over several years instead of all at once.
Who it's often for
- People without a pension
- Independent professionals and business owners
- Retirees who worry about outliving their money or a market drop early in retirement
- Anyone who wants predictable income for essentials
How it works
Scene 1
The flow at a glance
Building the floor for essentials
Everything else
- 1Estimate essential monthly expenses in retirement.
- 2Subtract guaranteed income you already expect, such as Social Security or a pension. The difference is your income gap.
- 3Fill the gap with guaranteed income: an immediate income annuity (starts now), a deferred income annuity (starts at a future date), or an annuity with a guaranteed lifetime withdrawal rider.
- 4Laddering option: buy income in stages (for example, at 60, 63 and 66), which spreads decisions over time and can lock in rates at different points.
- 5Keep other savings flexible for discretionary spending, emergencies and legacy.
What to watch out for
- Money used to buy income is generally not accessible like savings.
- Many annuities have surrender periods and charges.
- Fixed income loses purchasing power to inflation unless you plan for it; some contracts offer increasing payments at a lower starting amount.
- Guarantees depend on the issuing carrier's financial strength; state guaranty associations provide limited protection that varies by state.
- Riders add costs.
- Don't put money you may need for emergencies into income annuities.
Questions to ask before moving forward
- What are my true essential expenses?
- When should I claim Social Security?
- How much of my savings should stay flexible?
- Should I buy income all at once or in stages?
- How will I handle inflation?
- How strong is the carrier?
Who else should be involved
Your CPA (tax treatment of annuity income) and any other professional helping with your retirement accounts.
Related concepts and services
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Book a ConversationAdvanced concepts are described in general, simplified terms for education only. They involve legal, tax and financial considerations that depend on your situation and on current law, which can change. IAM Money Management does not provide tax or legal advice; consult your attorney and tax professional before implementing any strategy. Life insurance and annuity products are issued by insurance carriers, and features, costs and guarantees vary by carrier, product and state. Guarantees are backed by the claims-paying ability of the issuing carrier.