The Flooring Approach: Building a Retirement Safety Net in Volatile Markets

The stock market's recent rebound—driven by tariff relief and strong corporate earnings—has investors optimistic, but retirees face a paradox: How do you seize growth opportunities while safeguarding against market downturns? Enter the Flooring Approach, a strategy designed to insulate essential expenses through guaranteed income while deploying surplus assets into growth-oriented investments. In June 2025, with annuity rates at attractive highs and dividend stocks showing resilience, this hybrid model has never been more actionable.

The Foundation: Guaranteed Income for Essentials

The Flooring Approach begins by securing a “floor” of income sufficient to cover basic needs—housing, food, healthcare—regardless of market swings. Two pillars form this foundation: Social Security and annuities.

Social Security: The Bedrock of Retirement

The 2025 Social Security Cost-of-Living Adjustment (COLA) of 2.5% boosts the average retired-worker benefit to $2,000.03 monthly, a milestone marking the first time this threshold has been crossed. Yet retirees must remain vigilant: the COLA formula relies on the Consumer Price Index for Urban Wage Earners (CPI-W), which underweights healthcare and housing costs. For example, CPI-W's 2.5% rise contrasts sharply with healthcare inflation, which averaged 4.1% over the past five years. To bridge this gap, retirees should maximize their Social Security strategy—consider delaying benefits until age 70 to secure higher lifetime payouts, and ensure earnings limits are respected (e.g., $23,400 for those under full retirement age).

Annuities: The Inflation Hedge

Annuities, particularly inflation-adjusted fixed annuities, are critical for outpacing rising costs. In June 2025, multi-year guaranteed annuities (MYGAs) offer rates up to 5.95% for five-year terms (e.g., Upstream Life Insurance's Secure Legacy MYGA), far outperforming bank CDs. For retirees seeking longevity protection, inflation-adjusted annuities—though initially offering lower payouts—can lock in lifetime increases tied to the Consumer Price Index. A retiree investing $250,000 in such an annuity today could secure a baseline income that grows with inflation, shielding essentials from erosion.

The Surplus: Growth Assets for Compounding Wealth

Once the floor is secured, surplus assets can be allocated to tax-efficient, dividend-paying stocks and REITs, which offer both income and growth potential.

Dividend Stocks: Steady Growth Amid Volatility

Companies with decades of dividend growth—such as NextEra Energy (NEE) and Procter & Gamble (PG)—have historically outperformed during market corrections. For instance, Procter & Gamble's dividend yield of 2.8% (as of June 2025) pairs with its 6% annual earnings growth, creating a dual-income-and-growth engine. Dividend aristocrats like these are particularly valuable now, as the S&P 500's 10% historical return includes dividends—a critical factor in compounding wealth.

REITs: Inflation-Proofed Real Estate Exposure

Real estate investment trusts (REITs) in sectors like healthcare (Welltower (WELL)) and logistics (Prologis (PLD)) provide inflation-linked income streams. With the Federal Reserve's 2025 rate path now including potential cuts, REITs—which thrive in lower-rate environments—could see valuation rebounds. Prologis, for example, has delivered 12% annualized returns over five years, fueled by rising industrial real estate demand.

Tax Efficiency Matters

Retirees should hold dividend stocks and REITs in taxable accounts to benefit from preferential tax rates on qualified dividends (0-20%, vs. up to 37% on ordinary income). Meanwhile, tax-advantaged accounts like IRAs can hold growth assets with higher turnover.

Why Act Now? Market Conditions Favor the Flooring Approach

June 2025 presents a confluence of factors that make the Flooring Approach urgent:
- Annuity Rates: MYGAs at 5.95% are near their highest levels in a decade—rates could fall if the Fed cuts rates later this year.
- Dividend Stability: Stocks like NEE and PG have held up well during the year's volatility, offering ballast to growth portfolios.
- Inflation Dynamics: While core PCE inflation has dipped to 2.5%, the CPI-W's limitations mean retirees must self-insure against undercounted costs like healthcare.

The Psychological Edge of a Secure Floor

The Flooring Approach reduces the “sequence of returns risk”—the peril of withdrawals during market dips. With essentials covered, retirees can endure market corrections without panic-selling growth assets. This mental clarity allows disciplined reinvestment during downturns, compounding wealth over time.

Final Considerations

• Diversify Annuities: Spread investments across providers (e.g., New York Life, MassMutual) to mitigate issuer risk.
• Monitor COLA Projections: The 2026 COLA is expected to be 2.3%, underscoring the need for supplemental income sources.
• Rebalance Annually: Adjust allocations as rates and market conditions shift—2026's lower COLA may warrant higher annuity allocations.

Conclusion: Secure the Floor, Then Grow

In a world where inflation lingers and markets oscillate, the Flooring Approach offers a clear path: guarantee what you can't afford to lose, and invest what you can afford to risk. June 2025's high annuity rates and resilient dividend stocks make this strategy both practical and timely. Retirees who act now can build a foundation that weatherstorms, while leaving room for growth to flourish.

The time to act is now—not when the next downturn hits.