While it's true that annuities are often used in an income flooring strategy, this might not be practically necessary if the withdrawal floor is sufficiently low.Northern Flicker wrote: ↑Sun Nov 28, 2021 4:35 pm A very important technique of dealing with SORR is income flooring-- establishing a base income that covers essentials without taking risk, and then takes some risk to cover unpredictable expenses and discretionary spending.
This typically involves using an income annuity in conjunction with social security and any pensions to cover essential expenses. Delaying social security is equivalent to purchasing a COLA'd income annuity and should be done before a SPIA purchase is considered.
Below is a graph from Portfolio Charts' retirement spending chart, and the portfolio being analyzed is a 60/40 AA with all U.S. assets since 1970. 4% of the portfolio's balance was withdrawn every year, but the minimum withdrawal was 2% of the inflation-adjusted starting balance. Note that while there were some periods where 3-12 years into the retirement, the floor was nearly reached, in no case did that actually occur. Therefore, many, including myself, would argue that for this AA, a retiree whose essential spending needs not otherwise covered by guaranteed income sources, such as SS benefits, do not exceed 2% of the starting portfolio balance and who is willing to adjust discretionary spending in direct proportion to portfolio performance does not likely have a justifiable need for an annuity or similar instrument.
Of course, the liability matching portfolio + risk portfolio idea also achieves a similar aim, but it does so by foregoing virtually all upside potential with the assets used in the LMP itself, typically a ladder of TIPS and/or I bonds. That is not the case with the above approach, though it is theoretically possible that the portfolio could be prematurely depleted.
Several years ago, I started this thread to discuss this type of strategy, but it didn't get much traction.