I know this topic has been covered extensively here, and the consensus/data/research indicate that SPIAs are not a good deal until later in life, when one benefits from mortality credits. And even then, one has to be in a "donut" hole of sorts, where there are no enough assets to "self insure" if you will, but also have enough assets that an SPIA will generate enough cash to cover a spending gap.
Despite this, there is something about buying an income stream that really appeals to me. So my question is likely more to do with the psychology of investing and of risk than anything else. But here is my situation, and here is the "strategy" that my mind desires, even though I am NOT seriously considering implementing such a plan.
Married, 40s, maxing out all tax available accounts with some money left over to invest (currently doing muni bonds and savings bonds). No children, and no desire to leave money for any heirs, although I do wrestle with leaving money to charity, but for now assume I don't desire that.
What I was thinking was to invest some taxable monies periodically into a joint spia, possibly inflation adjusted. Every so often (yearly, or every two years for example) I would purchase another SPIA with extra cash AND the income which has been paid out from previous SPIAs. Eventually when I retired, I would have several SPIAs of different amounts purchased at different times paying out monthly income. This would be in addition to the IRAs and 401ks.
This would be like an SPIA "ladder" or sorts, no? Assuming a long life span, why is this a bad idea? I like the (supposed) stability this provides. The ability to rely on an income stream which increases each year until retirement. As retirement approaches, I figure I'd be better able to figure out when I could retire, because I would know my SS payouts, and my SPIA payout. Thus I would be less reliant on determining a safe withdrawal rate on my stock/bond portfolio.
Anyway, something about this plan really appeals to me, even though I trust that the math makes this a losing bet. Maybe it means my risk tolerance is lower than I thought? But I consider myself to have a very high risk tolerance, so can't really figure out WHY the above plan is appealing. I think it's because, despite an appetite for risk, I also crave the ability to plan, and perhaps fear having to make a decision about when exactly I've reached my "number". With an income stream already in place, it would be easier to see how much of a spending gap I need my stock/bond portfolio to provide.
I also like the fact that should I die first, Mrs. Neurosphere has a somewhat easier situation than otherwise, where between SS and SPIA, has a steady income stream she can easily adjust her spending to. Also, there will be less of a pile of cash with which she can fall prey to unscrupulous advisors, etc. She has no head whatever for investments, but has an outstanding understanding of a sticking to a budget.
I don't think I'm describing this eloquently, and mostly I'm just thinking out loud and hoping that forcing myself to put my thoughts down "on paper" helps to give me insight into my motives. It may also be that I'm a tinkerer, and an SPIA is a "product" I don't have and I'm really just bored and looking to complicate, I mean, uh, enliven my portfolio.
"I'm not always choosing investments, but when I do, I prefer them to be boring. Sleep well, my friends." --The Least Interesting Investor in the World.