Reply to Exceeding the 4% withdrawal rate

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I guess I am skeptical of any investment tips that promise more than commonly accepted returns. these things remind me of cryptos. [/quote]

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). [/quote]

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.[/quote]

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.

[b]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.[/b] [/quote]

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)?[/quote]

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