Last week, Michael Kitces at kitces.com blogged about whether is is better to use a safe withdrawal rate methodology or buy an inflation adjusted annuity to protect essential spending in retirement. In his post "Annuities Versus Safe Withdrawal Rates: Comparing Floor/Upside Approaches," Kitces breaks down the trade offs involved in using a safe withdrawal rate strategy versus buying an annuity or TIPS or some other income asset that has a guaranteed payout rate.
Kitces takes a hypothetical retiree with $1 million in assets who needs to fund $25,000 a year in expenses above what Social Security will pay and runs through the alternative scenarios of buying an annuity and using a safe withdrawal rate strategy. During his exposition on the numbers, Kitces states "both produce roughly comparable floor amounts, but the safe withdrawal rate approach doesn't surrender liquidity and control, and retains what in reality is a high probability of something between a substantial and very substantial upside (compared to an annuity approach that guarantees nothing of the annuity's value will be left and no upside can be enjoyed)."
Makes you wonder - doesn't it? Would you rather have an insurance company guarantee or potentially have $2.5 Million to leave to your family and friends through your estate?
This information is neither an offer to sell nor a solicitation to buy securities. Forecasts, estimates and opinions stated are my own and the data presented is for educational purposes only. Investments involve risk unless otherwise stated. Past performance is not a guarantee of future results. Be sure to first consult with a qualified tax and/or financial adviser before implementing any strategy discussed.