Laddering Investments: Principal Protection With an Annuity Ladder

Hi there, America. Stan The Annuity Man, America's Annuity Agent, licensed in all 50 states. We're going to talk about laddering investments and protecting your principal, all at the same time. Not lathering, that's clean investments. We're talking about laddering, like climbing the ladder. I digress. Hey, by the way, I'm wearing a shirt that says question everything. This was sent to me by some guy, I think it was in Arizona somewhere. You can send me a T-shirt, I'll wear it. Double extra-large. But question everything. I thought this was appropriate. You question everything with annuities. Question it. I need you to revert to being a two-year-old. "What's that? What's that? Why? What's that? What's that? Why?" Do that because you need to understand the contract before you buy anything, right? The only urgency is to understand, not the urgency to buy.

I've written six annuity owner manuals on all products. You can download them for free. And why I do that is I want you educated. I want you to understand how these products work. Now, today, we're talking about laddering and principally talking about Multi-Year Guarantee Annuities and Fixed Index Annuities. I've written books on those. That'll be two of the six that you can download, but you need to read them all.‌

I do these blogs, videos, and podcasts weekly. But when you start talking about laddering and customizable type strategies, you need to speak with us one-on-one. You can do that by scheduling a time at The Annuity Man. But we're going to talk about laddering.

How It Works

Laddering strategies are nothing new. I mean, people have been laddering CDs forever. They've been laddering bonds forever. You can also ladder annuities. Now, you can ladder for income, but we're talking about principal protection today. How do you ladder for principal protection? There's a live MYGA feed on The Annuity Man. MYGAs are the annuity industry's version of a CD, a Certificate of Deposit, with no annual fees and no moving parts. It's very simplistic and easy to understand. You could explain it to a nine-year-old, and no offense to nine-year-olds, but they would totally understand it.

‌If I'm standing in front of the second-grade class as The Annuity Man, I'm like, "Okay, here's how MYGAs work. You give the insurance company money and choose the time and duration. And duration, second graders, means the time that you want to lock it in, and you're going to get a specific interest rate for that specific period of time. All right, second graders, do you understand?" "Yes, we do. Mr. Annuity Man. We totally understand what you said." You should, too. That's how easy it is.

‌Ladder Example

‌Now, with laddering MYGAs, Multi-Year Guarantee Annuities, typically, I don't like you to go farther out than five or seven years. I'll give you an example of a couple of ladders we're doing now. We're doing a three-year, a five-year, and a seven-year, which is kind of a longer end of that ladder. So, you're buying, let's just say, for example, you have $300,000. You put $100,000 in the three-year, $100,000 in the five-year, $100,000 in the seventh year. Obviously, the longer the duration, the higher the guarantee.

‌But the good news is that you have money coming due starting in year three and then in year five and year seven, and hopefully, we can transfer that non-taxable event to a higher fixed rate. Or you can just get your money back and move on, do what you want. The other ladder that we're doing a lot of is a three, four, and five-year ladder. So, a three-year MYGA, a four-year MYGA, and a five-year MYGA to keep those durations short.

I always tell people to choose the shorter one if they're deciding between this duration and that duration. In most cases, choose the shorter one.

‌Currently, some A-plus rated carriers typically aren't competitive in the MYGA world. For some reason, they've come out and are very competitive at the seven-year level. So, a lot of people are saying, "Well, heck, they're A-plus rated; let's go get that seven-year piece of paper." That makes sense. There are specific times. But most of the time, you're going to err on the side of caution and choose the shorter duration because you always want money coming due and accessible. You don't want to lock in for the long term.

‌Fixed Indexed Annuities

‌Okay, so I was talking about a fixed-rate ladder using MYGAs. Now, the other CD product out there, I know that agents don't tell you it's a CD product, but it is. It was designed in 1995 to compete with CD returns. It's an Indexed Annuity, a Fixed Indexed Annuity.

‌And I know you've gone to the bad chicken dinner seminar, or you might have an agent advisor who said, "You're going to get market upside with no downside." Well, if that was true, which it's not, but if that was true, then the FED would just buy Indexed Annuities, period, because that's a good deal. Market upside with no downside, it doesn't work that way. Typically, the blended return is at a CD level. There's absolutely nothing wrong with that.

‌And in a laddering strategy, what I like to do sometimes is if someone says, "Well, I really need this. I really need a little bit more yield in that, Stan." Okay, I can't guarantee that, but with Indexed Annuities, there's a potential that you might get a little bit better than CD returns. So, what we do is, we'll do what's called a mixed fixed ladder. You're mixing the two fixed-rate type annuities, two fixed annuities, MYGAs, Multi-Year Guarantee Annuities, and Fixed Indexed Annuities.

‌Mixed Fixed Ladder Example

‌I'll give you an example of one that we did recently. We did a three-year MYGA, a five-year MYGA, and then a seven-year Indexed Annuity. The three in the five-year MYGA have a guaranteed interest rate every single year, which is contractual. The Indexed Annuity returns are based on a call option, with no dividends included. Typically, on the S&P, but there's a lot more. There are 40-plus types of indices out there that you can attach to. But there's a potential for you to get a little bit better than CD return on that asset and protect the principal.‌

The bottom line with both laddering strategies is whether it's a fixed rate laddering strategy, just MYGAs, 100% principal protection, or no annual fees. If it's a mixed fixed ladder, which is MYGAs and Index Annuities. If you don't attach an Income Rider to an Index Annuity, there are no annual fees. So, it is 100% principal protected, with no yearly fees.

With 10,000 baby boomers retiring or hitting retirement age every single day, many people are looking for contractual guarantees. They want to avoid losing a penny.

Hit Bunt Singles

‌As I say, baseball analogy, hit bunt singles. You don't want to be swinging for the fence's investment-wise. You want to be hitting bunt singles, not losing principal, but making a little bit of money. And if the markets go south, you don't lose a penny. I believe a lot of you out there going, "Yes, Stan. That's it." Now, when I say that, I need you to be rational. I need you to say, "I know I'm not going to get the greatest returns, but I'm going to protect the principal.

‌I'm at the finish line. I'm at that principal preservation stage of my life where I don't want to lose any more money. I don't have the time to make it back up." And that's probably you if you're reading this blog. And if it's not, if you're young, it's going to be you down the road because as you get older, risk isn't that attractive anymore. To many people, it is, but most have worked hard for their money.

It's taken them a long time to accumulate that money, and they want to make sure that they're going to protect the principal. Laddering fixed-rate annuities or laddering fixed-rate annuities and Index Annuities together can provide that principal protection with a return scenario that I think you'll be really happy with.

‌Once again, when you get into these specific strategies, they aren't a do-it-yourself type of event; you need to engage with us. When you set a time to speak with us, we'll call you right on the dot when you place the appointment. I'm the number one agent in the country. I'm America's annuity agent. And every single recommendation that runs through the company comes through me. I look at it, I sign off on it, and I'm hoping that you will take advantage of that no-cost, no-obligation consultation. Go to The Annuity Man and get the books. I put a podcast out twice a month on all major platforms called Fun With Annuities. So, with that, I'll see you on the next Stan The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.