Laddering retirement annuities may be the way to stay out of a financial hole in retirement, according to a new study.

But planners are more cautious about the news, offering mixed reviews on the laddering strategy.

Lifetime income and liquidity are among the benefits that this approach offers, according to Massachusetts Mutual Life Ins. Co., Springfield, Mass., which sponsored the survey.

The process incorporates a portfolio of stocks, bonds and incremental purchases of annuity income benefits over time with goals of producing guaranteed lifetime income, developing more liquidity, and building more long-term wealth.

The results indicated that an income annuity, whether purchased all at once or over time, generally out-performed the stock and bond-only strategy, regardless of market conditions in the periods studied.

The study tested different strategies for managing a retirement income account over 181 time periods between 1965 and 2006, MassMutual says.

It maintains that the investment-only approach, even during strong equity and bond markets, ran out of money in 25% of cases. In contrast, annuity laddering matched the income goal in 100% of the cases.

The study found that a stock-and-bond-only strategy preserved the original deposit at the end of each period tested in just 45% of the cases, while the laddered annuity strategy preserved the original deposit in 93% of cases.

And, for the 45% of the cases in which the stock-and-bond-only strategy preserved the original deposit, the average liquid value of the laddered life strategy was 66% higher.

In every case, according to the study, the laddered annuity strategy matched the income of a life and 20-year certain annuity utilizing 100% of the deposit, and on average more than tripled the original deposit at the end of the period.

Additionally, the average laddered annuity strategy matched income in every case and on average resulted in more than 5 times the original deposit.

The study tested the performance of various asset allocations within a hypothetical $100,000 retirement account tested to produce the same targeted level of annual retirement income over 181 27-year investment periods at monthly starting dates from Jan. 1, 1965 through Jan. 1, 1980.

Planners weighed in with their own views of the laddered annuity approach.

Jeremy Portnoff, a certified financial planner with Portnoff Financial, Westfield, N.J., notes that many people are reluctant to give up control of their money to an insurer and annuitize their funds, preferring instead to take their chances with market fluctuations.

Portnoff says he would like to see an independent study on laddered annuities before he reaches any conclusions on the strategy and “certainly before I’d recommend such a strategy to clients.” He maintains that “a properly diversified portfolio managed with a disciplined long-term strategy should be able to provide an equivalent income stream long term.”

Russell Wild, a financial advisor with Global Portfolios, based in Allentown, Pa., says that “for certain clients, particularly those who are healthy, without dependents, and in no need for a legacy, yes, low-cost fixed annuities make a lot of sense.

“Laddering the annuities makes added sense. That would be true at any time, but especially now with interest rates teetering at near their historical lows. For such clients, a laddered-annuity strategy beats either the no-annuity-all-stock-and-bond strategy, or the let’s-annuitize-it-all-right-now strategy.”

Joseph Alotta, a principal with Open Door Investment Advisors, Inc., Westmont, Ill., notes that most of his clients are well-to-do and have discretion with their spending options and consequently do not have to compromise to get a guaranteed income.

“The annuity ladder strategy is something that I would never recommend. The reason is high fees from insurers and 3%-4% yields that are nothing to write about.”

Alotta raises the possibility of systematic withdrawal from a mutual fund or a series of mutual funds. He says that a lot of the Monte Carlo projections do not account for the fact that in a market panic, people cut back on discretionary spending and adjust their lives until the stock market rebounds.

A structured annuity ladder would result in “guaranteed income” but also “guaranteed expense,” says Wayne B. Titus III, a financial advisor with AMDG Business Advisory Services, P.L.C., Plymouth, Mich.

“The thought of an annuity ‘ladder’ seems ludicrous to me. All you’re doing is setting up the exact same concept of a bond ladder,” he says. “If the objective is to ‘preserve’ and not ‘grow’ or to keep up with inflation, then a bond ladder of governmental bonds would be a much less expensive approach.

“If you need to ‘add’ performance in order to go beyond asset preservation, then I think you can accomplish, with much less expense, and with greater flexibility, a fixed income governmental bond ladder with a portion allocated to well diversified equity portion that would provide a much better option.” Titus explains.

John Belluardo, president of Stewardship Financial Services, Tarrytown, N.Y., says, “I believe a diversified portfolio of no-load mutual funds that is rebalanced regularly is superior to any annuity strategy. I use this approach to provide lifetime retirement funding for my clients.”

And, F. John Deyeso, a financial advisor with FinancialFilosophy, New York, says the issue of a strategy of laddered annuities is not a “cut and dry answer.”

Deyeso says laddered annuities are a “great concept and in theory work well to insure lifetime income.” However, he continues, there are offsets to those benefits including locking in an income stream that may not be sufficient over time, a principal that is gone and a “big concern” over fees and inflation protection.

For instance, he says most inflation riders use the CPI Index, which he notes “as many on the East Coast can attest is not really accurate to the true increase in the cost of living.”

Deyeso says he believes in the use of annuities but in a phased-in approach starting in the early to mid-70s and adding on that base as the client gets older. A phased-in approach, he says, allows for certain things: maximizing liquidity in case of medical emergencies; increasing the payouts for annuities as clients get older; and allowing the client to balance the flexibility of having cash with the risk of outliving their income.

He says he foresees better annuity options and lower fees as boomers start to retire, a change that will make “annuities a more attractive option.”

Annuities have “their time and place,” but are overused, says Adrian Eddleman, founder and chief investment officer of Eddleman & Eddleman, Jackson, Tenn. He says that while he has not read the Mass Mutual study, in general, given the exact same rates of return, the annuity will produce less combined income and capital appreciation due to the added cost.

If a different approach is taken and 2 different rates of return are used–1 for the return of a stock and bond mix and 1 for annuities, less fees–then the question becomes whether a client can endure volatility if the stock/bond return is less than the annuity less fees, he explains.

Jim Davis, a financial advisor with Partnership Financial, Grove City, Ohio, and a member of the Alliance of Cambridge Advisors, says the issue of outliving income in retirement comes up often with clients but while bond ladders are used, annuities in ladders are not. What is used, he continues, are stripped Treasuries, which are securities that separate the interest and principal repayment cash flows.

Although annuity expenses have come down, stripped Treasuries are used because the concern with a bond ladder is safety and not yield. “Safety always trumps yield,” he says.

Ladders are typically constructed about 5 years before retirement and go out about 12 years, he adds. The way it works, Davis explains, is to use either the bond ladder money or equities money to pay for living expenses, depending on which one performs better. If equities are up, any bond money is used to add rungs to the upper end of the bond ladder, he explains.

Additionally, he says, his firm builds bond ladders in IRAs for tax efficiency, a strategy, which Davis maintains, does not work with an annuity.

Georgia Bruggerman, a financial advisor with Meridian Financial Advisors, Holliston, Mass., believes that bonds or a combination of bonds and preferred stocks can accomplish the same thing as an annuity ladder.

“With the current financial crisis there are corporate bonds out there with very attractive yields which can be laddered out 10 years,” she says. Additionally, when rates start rising again, CD rates will also increase, and those products have no call, management fee, loads or commissions, she adds. Preferred securities that are callable in 5 years are currently yielding 8% or more.