And for those of us who do not have heirs ? Is it an approach we might wish to consider ?
With no heirs I might very well consider going all annuities! It seems like the only way to spend down to zero relatively safely. Although I'd always like a significant portfolio value for the unexpected.
I have thought of doing this:
I have a big mortgage at 3.25% that I will not be paying off anytime soon. Scaling the value, lets say I borrowed $1M and it costs $4352.06 per month, $52,224.72 per year principal and interest. I could take that $1M and buy an annuity that paid out something above 5.25% yearly and use the extra as monthly income. When the mortgage was paid off, I'd have a really big income boost. Although I'd have to wait just about 30 years, so that's probably not going to happen.
This is what I didn't like:
If I wanted to sell the house, I'd have to take out a loan! The loan payoff money is in the annuity and dribbling out monthly. That's the main killer right there. This is a permanent arrangement.
An SPIA is a bond-like investment (bond-like returns) with an insurance aspect. I'd rather put the $1M in equities, more risk and hopefully more return. Easily possible to take a 5.25% withdrawal (not inflation adjusted) and have $1M left (default FIRECalc says 98.2% chance I'll have something, with an average of $1.6M at the end of 30 years adjusted for inflation. I used $52,224.72 as "off-chart spending" with no inflation to match the mortgage). That makes the annuity look pretty unappealing.
I saw a 25 year period certain only (no lifetime guarantee) annuity on immediateannuities.com that would probably do the job in a few more years, but with a yearly payout of 5.87% I don't think the internal rate of return is even 3.25%. But if interest rates increase some more, this might eventually do the job. And if rates go bonkers I might consider doing something like this. A certain gain, even if rates go even higher. This is the cleanest loan/annuity match, but it will always depend on rates going up, because the bank's loan and annuity charges will ensure this is a losing proposition normally. That's why I said "generally no" this doesn't work.
If we die with a normal SPIA before the mortgage is paid off we may have lost the bet and our estate is smaller. Maybe not a factor in your case. Still, you may be enriching the annuity provider and screwing the loan provider when you die, assuming an unsecured loan. Or some poor executor has to sell the house and pay the debt for a mortgage loan, or sell the P.C. annuity to pay off the loan, or whatever.