New Calculator For Optimal Annuity Allocation

If there’s one thing that I can point to that’s been a career-long project then this is it.  The Flex Strategy started when guaranteed lifetime withdrawal benefits were introduced to the market in the mid-2000s.  At the time I felt it was better to avoid fees and make a shorter commitment with deferred annuities, rather than locking into a lifetime income contract.  There were advantages to both, just like there are today, but I felt as though everyone deserved to have the choice.  Depending on individual circumstances, the mathematical advantage will fall to one side or the other.  Even when guaranteed income seems to be the best option, many people take the flexible route because they want to stay in control of their assets.

Starting in the early 2010s, longer maturity bonds and treasuries dropped so low that there was almost no real advantage to using guaranteed income contracts.  My flexible approach became more popular because people who wanted to protect some assets would have the chance to reposition the annuity into other investments a few years down the road.  Early users of the strategy could avoid the hefty price tag for guaranteed income but keep enough safe assets to weather any storm.  With more assets remaining in the market, those guys all came through the lowest rates in history with very robust portfolios.  I still work with many of them today who have completely changed their strategy.  It wouldn’t have been possible if they did things like everyone else.

I’m glad I was able to make a good living doing it without taking advantage of people for the highest commission possible.  Through those lean interest rate years I continued to look for ways to explain to people how the strategy works.  I came up with an idea based on the sequence of returns.  Income annuities are meant to provide cash flow so market fluctuations don’t affect retirement but they provide income in all years of retirement.  If trying to avoid a negative sequence of returns then you only need a pool of cash to access in the years when the market is down in value.  The result is that we could justify a smaller allocation to the annuity if all a person needs to do is weather two or three years of a market storm.

When interest rates were low, income annuities were prohibitively expensive.  We could use the Flex Strategy and cut the annuity allocation in half.  What happened since most people started this is that the stock market started one of the best runs it has ever had and my clients had more money exposed to it.  I built a spreadsheet with historic market returns and a portfolio value to see what growth looks like over time.  Then I manually deducted withdrawals from the account to simulate an income scenario.  It takes just one year to see how damaging a market withdrawal is in negative performance years.  It’s a negative sequence of returns and it makes an exponentially negative difference in the outcome of the portfolio over extended periods of time.

If I took a piece of the portfolio initially and put it into a fixed account the long-term growth would be reduced.  But when taking income, the distribution would come from the safe side, thus eliminating the sequence of returns risk.  The result was a much larger portfolio which obviously gives the owner a much higher probability of meeting all other challenges in retirement.  This had positive implications for anyone needing a retirement distribution plan, whether for income or even required minimum distributions.  You could own an annuity, take much less risk, enjoy a stable retirement, and have more money than if you didn’t have the annuity.  Maybe you can begin to see why I wasn’t all that popular with others in the industry.  Investment managers didn’t like to see any advantage to using an annuity and insurance guys wanted to sell the biggest possible annuity in every scenario.

This wasn’t really a new idea because academic research settled it decades ago.  Annuities improve a retirement portfolio.  What’s important about this is that it takes that research and turns it into an actionable strategy that works in the current environment.

I really liked my rudimentary spreadsheet that could illustrate the problem and solution at the same time.  But it was far from cutting edge.  I used it in meetings to show people an alternative and one guy, who was a business analyst, asked if I could send him a copy because he had some ideas.  He sent it in with formulas added that made the calculations more automatic.  We took it from there and put it into a google sheet that many of you have seen.  We added inflation, other sources of income, and a variety of market scenarios.  It worked seamlessly to show the benefits of having an annuity in retirement.

It was five or six years of doing the same thing.  Income payout rates were low and the best annuity strategy was short-term.  The spreadsheet worked just fine to show the effect of an annuity in a portfolio.  We had a way of showing guaranteed income or the Flex Strategy and while rates were low the Flex always came out on top.  People liked it because they could stay in control of their assets.  

In the middle of 2022 rates came up and the advantage shifted heavily toward income annuities.  We could still compare the flex strategy and the final portfolio numbers turned out the same.  It didn’t make a difference how you used an annuity, but using an annuity made everything better.  What was once a strategy that heavily favored the Flex path, turned the advantage toward income annuities.  With portfolio values in the future projected to be the same with either annuity option, one has guaranteed income and one does not.  Even so, about half the people who see the comparison have chosen to use the Flex Strategy.  Most agree that they may do what my clients did in the past and switch strategies to guaranteed income later in retirement.

For the past few years, Cayce Williams has been working on the website as a programmer.  He keeps the site up to date and designed the annuity calculators that I released last year.  It helped a lot of people search for annuity quotes without the sales pressure.  When that was finished Cayce wanted another project.  I dusted off the old spreadsheet and showed it to him.  The immediate plan was to turn that into some interactive software with basic input and automatic analysis.  For the past several months we have been working on it and recently filed a patent for the finished product.  I’m excited to share it with all of you.

It’s unlike anything else available in the financial services industry because it uses actual income annuity quotes to see how it affects your portfolio over time.  Basic inputs are total portfolio value, age today, income start age, inflation rate, management fees, and desired annuity allocation.  Using historic market returns you can see how your portfolio will perform with and without an annuity.  Expanding the calculation tables will show you how much more performance you get by eliminating sequence of returns risk.  Once the outputs have been calculated you can use the slider bar at the top to automatically adjust to annuity allocation to find the optimal balance for your portfolio.  One quick click of a button will show you how the Flex Strategy compares.  In short, it tells you whether an annuity will help you, and gives you two different options.  No sales involved, just cold hard numbers.

This idea has been years in the making so it is very important to protect my intellectual property.  I don’t think anyone has done this much work to present the value of annuities to people who can benefit from it.  For now we plan to keep it behind a firewall and use it only for individual meetings but I plan to offer plenty of case studies on the podcast to demonstrate its versatility.  We may also release it to a few other advisors for testing so get in touch if you’d like to use it for a while.  Feedback is extremely important so please let me know what you think.  The fundamentals are sound but there are a lot of features we can add.  In the podcast there’s a demonstration so make sure to check that out and get on my calendar if you want to see a demo with your numbers.

Have a great weekend!

Bryan

Watch Episode 215: New Calculator For Optimal Annuity Allocation

Last Updated on February 20, 2026 by Bryan Anderson