... annuity ... to cover the gap between monthly income and monthly expedniture.
Sadly, except in the case of an inflation-adjusted annuity, this is a false premise over the long term.
In some ways an annuity is a transfer of risk.
Partially true. The usual annuities at least partially take over the risk of running out of money. But they do not do anything about inflation risk.
Any real world experiences ...
Well, we've had a real world lab experiment in the past year or so. Assume you bought your expenditure-covering annuity a year ago. Have your expenditures gone up? Probably. Would the annuity payment for this year have gone up? No. Even at just 2% inflation (the Tooth Fairy will be bringing that soon
), the buying power of a fixed annuity will cover only 2/3 of those expenditures 20 years out.
Here is a possible strategy, though I cheerfully admit that I have not put numbers to it: Buy TIPS to the point where the coupon rate times the current TIPS value covers those expenditures. Then, going forward, those payments will rise with inflation as the TIPS value increases. So there is your wannabe inflation adjusted annuity.
Lots of potential problems with this and I'm sure others here will jump in to discuss them. First, federal taxes on the coupon payments and the value increases. Second, if you buy with a negative YTM then the TIPS become a wasting asset. How negative, for how long? And finally, the most important weakness is future inflation. If it is the 1.5% or so of recent decades, then it is not such a consideration. If the current 8.5% is somewhat sticky and the promised ride to 2% is slow, that is another matter entirely.
Don't pay much attention to TIPS YTM. Those numbers are implicitly based on zero inflation and IMO a comparison to other YTM numbers is apples/oranges.