Exceeding the 4% withdrawal rate

[Anonymous]

This article talks about how one can get a real withdrawal rate of 4.3% over 30 years using TIPS. Has anyone done something like this? Seems like a good idea for at least a portion of your net worth and likely a lot more dependable than other options. Thoughts?


https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier

[Anonymous]

He's going to make a little less than $30k on a $100k investment over 30 years? Talk about missing the forest for the trees.

[Anonymous]

Anonymous wrote:He's going to make a little less than $30k on a $100k investment over 30 years? Talk about missing the forest for the trees.

He is getting $30k real not nominal. A lot of people would be happy with that, especially as one component of their retirement income

[Anonymous]

Interesting article. The author, who is an investment advisor, had a difficult time building a TIPS ladder. So I think this might be a bridge too far for most investors. I'll stick to a diversified portfolio.

[Anonymous]

I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

[Anonymous]

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

[Anonymous]

Anonymous wrote:

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

If you start with 1 mil, a 100% equity portfolio with a 4% withdrawal rate gives you 10 million bucks (median) after 30 years. So no thanks on the TIPS. Maybe this is a strategy worth considering for extremely risk averse investors.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

If you start with 1 mil, a 100% equity portfolio with a 4% withdrawal rate gives you 10 million bucks (median) after 30 years. So no thanks on the TIPS. Maybe this is a strategy worth considering for extremely risk averse investors.

I don’t know what kind of assumptions you are making but cfiresim says the median for that portfolio is $2.5m with a 5% chance of failure.

However, if you assume inflation stays at 5% then your median ends under $600k and your failure rate nearly 30%.

If inflation is 7% your median end is $0 and you run out of money in a majority of situations.

So it’s not for extremely risk adverse investors, it’s for investors who are planning for a 30 year retirement and think one of the primary risks for a long self-funded retirement is inflation. My guess is many of them have identified how much money they need in current dollars to live in retirement and have accumulated enough money to provide for that level of expenses but they want to preserve their purchasing power to provide a secure retirement. I also expect many of them have additional funds invested in the stock market.

However if you are a 25 yo who has only known bull markets and is trying to build a nest egg not preserve one that has been built I can see it’s not for you.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

If you start with 1 mil, a 100% equity portfolio with a 4% withdrawal rate gives you 10 million bucks (median) after 30 years. So no thanks on the TIPS. Maybe this is a strategy worth considering for extremely risk averse investors.

I don’t know what kind of assumptions you are making but cfiresim says the median for that portfolio is $2.5m with a 5% chance of failure.

However, if you assume inflation stays at 5% then your median ends under $600k and your failure rate nearly 30%.

If inflation is 7% your median end is $0 and you run out of money in a majority of situations.

So it’s not for extremely risk adverse investors, it’s for investors who are planning for a 30 year retirement and think one of the primary risks for a long self-funded retirement is inflation. My guess is many of them have identified how much money they need in current dollars to live in retirement and have accumulated enough money to provide for that level of expenses but they want to preserve their purchasing power to provide a secure retirement. I also expect many of them have additional funds invested in the stock market.

However if you are a 25 yo who has only known bull markets and is trying to build a nest egg not preserve one that has been built I can see it’s not for you.

Don't you think TIPS are an opportunity for appreciation as well? Current yields are assuming that int. rates will stay high forever. What happens when there is a recession and rates drop? Wouldn't these instruments shoot up in value (with corresponding drop in yield)?

[Anonymous]

10 year performance for TIPS is .84%. Yikes!

https://investor.vanguard.com/investment-products/mutual-funds/profile/vipsx

[Anonymous]

Anonymous wrote:10 year performance for TIPS is .84%. Yikes!

https://investor.vanguard.com/investment-products/mutual-funds/profile/vipsx

That is basically the same return as any bond fund these days— the bond funds were hit hard by the rise in interest rates this year. There is a way to approximate this strategy with TIPS funds instead of individual bonds but I wouldn’t try it, nor would I try to speculate on interest rates use TIPS funds.

[Anonymous]

Anonymous wrote:

Anonymous wrote:10 year performance for TIPS is .84%. Yikes!

https://investor.vanguard.com/investment-products/mutual-funds/profile/vipsx

That is basically the same return as any bond fund these days— the bond funds were hit hard by the rise in interest rates this year. There is a way to approximate this strategy with TIPS funds instead of individual bonds but I wouldn’t try it, nor would I try to speculate on interest rates use TIPS funds.

And this guy’s promising 4+%?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:10 year performance for TIPS is .84%. Yikes!

https://investor.vanguard.com/investment-products/mutual-funds/profile/vipsx

That is basically the same return as any bond fund these days— the bond funds were hit hard by the rise in interest rates this year. There is a way to approximate this strategy with TIPS funds instead of individual bonds but I wouldn’t try it, nor would I try to speculate on interest rates use TIPS funds.

And this guy’s promising 4+%?

Honestly if you can’t understand the difference between a bond ladder and a bond fund you probably should hold off commenting, but yes basically he is taking advantage of the drop in bond fund values to buy individual bonds on sale knowing the federal government has promised to pay the full maturity value plus fixed interest plus inflation adjustments.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

Tell me you don't pay attention to politics without telling me you don't pay attention to politics. It is an *express component* of the new GOP House majority to refuse to honor US government obligations if they don't get their way.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos.

These are backed by the full faith and credit of the US govt— could not be any safer.

What makes it work is he’s not seeking crazy returns, ”just” a inflation-indexed guaranteed income stream, and the spike in interest rates has made older bonds cheap (and has increased interest rates on newer bonds).

If you start with 1 mil, a 100% equity portfolio with a 4% withdrawal rate gives you 10 million bucks (median) after 30 years. So no thanks on the TIPS. Maybe this is a strategy worth considering for extremely risk averse investors.

I don’t know what kind of assumptions you are making but cfiresim says the median for that portfolio is $2.5m with a 5% chance of failure.

However, if you assume inflation stays at 5% then your median ends under $600k and your failure rate nearly 30%.

If inflation is 7% your median end is $0 and you run out of money in a majority of situations.

So it’s not for extremely risk adverse investors, it’s for investors who are planning for a 30 year retirement and think one of the primary risks for a long self-funded retirement is inflation. My guess is many of them have identified how much money they need in current dollars to live in retirement and have accumulated enough money to provide for that level of expenses but they want to preserve their purchasing power to provide a secure retirement. I also expect many of them have additional funds invested in the stock market.

However if you are a 25 yo who has only known bull markets and is trying to build a nest egg not preserve one that has been built I can see it’s not for you.

I refuse to take financial advice from anyone who doesn't know that the term is "risk averse."