LIMRA Home Link
Retirement Industry Report Banner

Retirement Income - The Floor-Leverage Model for Creating Retirement Income

Retirement Income - The Floor-Leverage Model for Creating Retirement Income

 Permanent link

A strategy to efficiently spend down assets in retirement called the "floor-leverage rule" was analyzed by Jason Scott and John Watson from Financial Engines in the September/October issue of the Financial Analysts Journal. The rule calls for initially putting 85% of a portfolio into an investment vehicle that secures an income floor, such as lower-risk bonds (e.g. Treasury Inflation-Protected Securities, or TIPS) or an income annuity, and the remaining 15% into a 3x leveraged equity portfolio (i.e., one that seeks to produce returns three times the performance of a target index through the use of swaps, options, future contracts and other financial instruments). An annual review is performed and if there is any extra equity, it is used to purchase additional income floor. The authors compare the floor-leverage rule to common alternative strategies such as the 4% rule and the bucketing method. (Source: Financial Analysts Journal)

LIMRA SRI Commentary: Determining sustainable strategies to maximize retirement income is a popular subject. There are many different approaches (and products) that offer a solution, each with its own pros and cons. No one strategy will meet all needs. For a strategy to be successful, it needs to be simple enough to be easily understood by retirees and their advisors. The floor-leverage approach fits this criteria and thus merits some consideration.

Posted by LIMRA-Windsor Marketing at 11/20/2013 08:44:07 AM | 


LIMRA Members can login to leave a comment.  Comments by others can be emailed to

Retirement Industry Report ARCHIVE