Help me fill in the blanks

[oldcrowcall]

Basic assumptions: Fully retired;  3% WDR fills gap; Firecalc says 100% SWDR to age 100 with 50-50 equity/FI; recently on SS; assume inflation rate about 3.5%.

If short term interest rates reach ____% I would (A) make my equity weighting _____% (B) bid the stock market a fond farewell and put it all into ladderd CD's or some such.

 

[audreyh1]

The problem is that short term interest rates NEVER go high enough to beat inflation in the long run so you have to hold some equities to beat inflation.

If short term interest rates are high enough to "live off of" interest you can bet that your buying power is getting chipped away very quickly.

Audrey

 

[brewer12345]

I have to agree with Audrey that your purchasing power could be pretty quickly eroded. However, if you bought TIPS or something like OSM (listed bond that pays CPI plus a spread), you might be able to set it and forget it. I'd still hold some equities, commodities, REITs, foreign bonds, etc., but you could probably get away with a prety heavy weighting in CPI-linked fixed income.

 

[oldcrowcall]

Right now a 1 year CD yields about 5% and the CPI-U is at about 3.5% annual rate. So, are you all saying that this is somewhat of an anomaly due to Fed actions or some reasons? I suppose that they have been long periods where short term rates had a negative real return. Duh! now that I think of it we are just coming out of such a thing.

 

[brewer12345]

And then you throw in the effect of taxes...