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🏛️ Safety-First Floor Builder

"The probability-based and safety-first schools disagree about one thing: whether the market can be trusted to fund the groceries." — after Wade Pfau

The safety-first argument: essential spending and discretionary spending are different liabilities, and they deserve different assets. Groceries, insurance, property tax and utilities are a bond-like obligation that arrives every month regardless of what equities did — so fund them with a contractual instrument, a TIPS ladder or a SPIA, whose payment does not depend on a sequence of returns. Everything above that floor stays in a low-cost index core, and can now hold more equity than before, because a bad decade no longer threatens the groceries. The floor does not replace indexing; it is what makes a high-equity index core survivable in decumulation.

STEP 1 Your Spending Liabilities

Essential, non-discretionary spending ($/yr)

Housing, food, utilities, insurance, taxes, medical. The spending that does not fall when markets do.

Discretionary lifestyle spending ($/yr)

Travel, gifts, hobbies, restaurants. Painful to cut, but survivable — this is what the market satellite funds.

Guaranteed income: Social Security plus pensions ($/yr)

Inflation-adjusted lifetime income you already hold. This is the floor you start with.

Investment portfolio ($)

Retirement age

Plan through age

STEP 2 Funding Assumptions

Real yield on the TIPS ladder (% per year)

Real yield, because TIPS pay in inflation-adjusted terms. Check the current curve before trusting the number.

Inflation-adjusted SPIA payout rate (% of premium per year)

An inflation-adjusted single-premium immediate annuity at 65 has recently quoted near this range. Get live quotes.

Real return on the index core (% per year)

Your RISA risk-aversion style

The RISA framework sorts retirees by what actually lets them sleep. The style sets how much of the essential spending this model insists on flooring.

OUTPUT 1 Contractual Floor Funding Gap

Annual gap between guaranteed income and essentials

—

	Value
Essential spending
Guaranteed income already held
Share of essentials your style asks you to floor
Annual income the floor must supply

Capital required, by funding route

Route	Capital	Share of portfolio
TIPS ladder to age
Inflation-adjusted SPIA

OUTPUT 2 Market Satellite Sizing

Once the essentials are contractually covered, the surplus is no longer funding survival — it is funding lifestyle and legacy. Pfau's argument is that this surplus can hold more equity than an unfloored portfolio, not less, because a bad sequence now costs you a holiday rather than the groceries.

Floor capital

Market satellite

	SPIA route	TIPS route
Capital freed for the satellite
Suggested equity weight in the satellite
Discretionary spending it must support
Implied withdrawal rate on the satellite

OUTPUT 3 Sequence-of-Returns Stress Test

Three historical sequences, applied as the opening years of retirement. These are historical illustrations, not forecasts — approximate real (inflation-adjusted) annual returns for a diversified stock-heavy portfolio beginning in 1966, 2000 and 2008. After the listed years, the model reverts to your assumed real return.

Sequence to apply

Without the floor With the contractual floor

	Without floor	With floor
Portfolio at plan end
Depleted?
Age at depletion
Worst annual shortfall against essentials

📖 Read the book alongside the model

The six chapters set out the reasoning this calculator only executes — why a floor is not the same as a bond allocation, and where each funding route breaks down.

Ch. 1 — Two schools of retirement income Ch. 2 — Why sequence risk is different Ch. 3 — Building the contractual floor Ch. 4 — Annuities and mortality credits Ch. 5 — TIPS ladders and bond duration Ch. 6 — Matching the plan to your RISA style

⚠️ Read this before acting on any of the above

This is a structural model, not a quote and not advice. It shows how much capital a floor absorbs and what that leaves behind. The prices it uses are inputs you supply, and real instruments are priced by a market that moves daily.

The historical sequences are illustrations, not predictions. They are approximate real returns for a stock-heavy diversified portfolio, rounded, and applied to a single static withdrawal policy. Your own asset mix, rebalancing and withdrawal rule would all change the path. Nothing here says the next bad decade will resemble any of the three.
A SPIA is a credit exposure, not a risk-free asset. The payment depends on one insurer remaining solvent for thirty years, backed by state guaranty associations with caps that are often well below a large premium. Splitting the premium across carriers is standard practice for exactly this reason, and this model does not do it for you.
A TIPS ladder is not permanent income. It matures. Laddering to 95 and living to 100 leaves five years with no floor at all — which is the case Pfau makes for pairing a ladder with deferred annuity income rather than treating them as alternatives.
Illiquidity is the real cost of annuitising. Premium handed to an insurer cannot fund a roof, a care episode or an emergency. The model shows capital freed for the satellite; it does not show that the floor capital itself has stopped being available to you.
The floor sits alongside a low-cost index core; it does not replace it. Flooring 100% of spending converts a growth problem into a purchasing-power problem — thirty years of inflation is a real risk even for inflation-adjusted contracts, once medical costs are weighted properly. The satellite has to keep compounding in broad index funds, and this structure exists to make it possible to hold that equity through a bad decade rather than to sell it.
Taxes, IRMAA and the location of each asset are ignored. Annuity income, TIPS coupons and portfolio withdrawals are taxed differently, and the difference is large enough to change the ranking of the two routes.