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TIPS as primary asset for retirement assets
Old 02-28-2005, 12:21 PM   #1
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TIPS as primary asset for retirement assets

I read in today's Wall Street Journal (2/28/05) that, as the writer put it, "The exceptionally fortunate can achieve their fianancial goals with the income from government bonds such as Treasury Inflation-Protected Securities (TIPS) and allocate remaining funds to stocks without much worrying." This fellow goes on to talk about his view of the relative risks of stocks to bonds going forward.

Is there any information about what level of investable assets one needs in order to obtain $100,000+ per year relying primarily on TIPS for the income? For example, a 4% return on $1 million = $40,000. So does one just extrapolate from that?

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Re: TIPS as primary asset for retirement assets
Old 02-28-2005, 01:29 PM   #2
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Re: TIPS as primary asset for retirement assets

New Tips currently pay 2-3% + the inflation adjustment. The inflation adjustment only keeps your buying power even so REAL growth no. us the the 2% or whatever it is right now.

So $1M in Tips would be around $20k/year inflation adjusted.
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Re: TIPS as primary asset for retirement assets
Old 03-02-2005, 05:47 PM   #3
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Re: TIPS as primary asset for retirement assets

Quote:
New Tips currently pay 2-3% + the inflation adjustment. The inflation adjustment only keeps your buying power even so REAL growth no. us the the 2% or whatever it is right now.

So $1M in Tips would be around $20k/year inflation adjusted.

so to answer the original question, it would take
anywhere between $3.3M to $5M to generate
$100,000/year (before taxes)....ouch....no
early retirement for moi anytime soon ....;-)
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SoRe: TIPS as primary asset for retirement assets
Old 03-02-2005, 07:25 PM   #4
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SoRe: TIPS as primary asset for retirement assets

Quote:
I read in today's Wall Street Journal (2/28/05) that, as the writer put it, "The exceptionally fortunate can achieve their fianancial goals with the income from government bonds such as Treasury Inflation-Protected Securities (TIPS) and allocate remaining funds to stocks without much worrying." *This fellow goes on to talk about his view of the relative risks of stocks to bonds going forward.

Is there any information about what level of investable assets one needs in order to obtain $100,000+ per year relying primarily on TIPS for *the income? *For example, a 4% return on $1 million = $40,000. *So does one just extrapolate from that?
Just in case you aren't familiar with the math, you divide your desired income by the withdrawal rate to get a lump sum of money you would need. Example:

$100,000/.04=$2,500,000

Based on those numbers, you'd need $2,500,000 invested to get a 4% return in order to be able to take $100,000 in income each year.

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Re: SoRe: TIPS as primary asset for retirement ass
Old 03-02-2005, 09:10 PM   #5
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Re: SoRe: TIPS as primary asset for retirement ass

Quote:

Just in case you aren't familiar with the math, you divide your desired income by the withdrawal rate to get a lump sum of money you would need. *Example:

$100,000/.04=$2,500,000
Or even easier, for a .04 rate, multiply the desired income by 25 to get the lump sum:

$100,000 * 25 = $2,500,000
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Re: TIPS as primary asset for retirement assets
Old 03-03-2005, 01:56 AM   #6
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Re: TIPS as primary asset for retirement assets

The link below does not answer the question posed in this thread in a direct way. But it does provide some insight into ways in which one might incorporate TIPS into a Retire Early investment strategy.

http://www.nofeeboards.com/boards/viewtopic.php?t=3480

JWR1945: "I have collected data using algorithm G1 with TIPS at a 0% interest rate. The results are encouraging."
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Re: TIPS as primary asset for retirement assets
Old 03-03-2005, 05:21 AM   #7
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Re: TIPS as primary asset for retirement assets

Here is my sub - concious version:

Income stream for the 'core budget' plus inflation fighter for da stretch.

My version: Income - defined non- cola pension, dividend stocks, early SS. Inflation fighter reserve - balanced index IRA.

Others:
* * * * * * Wellesley + something else

* * * * * * Inflation index pension + something else.

* * * * * * TIPS + a part time job/small business.

* * * * * * Fixed income + real estate.

I think the article is reaching for an income stream concept in their own way.

Also - given the scale of the numbers - the Journal of course wants you to pay for your broker's and financial advisor's yachts along the way - or am I being to cynical?
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Re: TIPS as primary asset for retirement assets
Old 03-03-2005, 09:34 AM   #8
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Re: TIPS as primary asset for retirement assets

There is no one correct answer to the question 'how much do you need in TIPS to withdraw $100,000 per year'.

If you buy TIPS with a 2% coupon, and you believe that the inflation adjustment deals with actual inflation, then you could withdraw your 2% indefinitely, and the answer to the question would be $5MM.

But this is unrealistic. Several people here have pointed out that the inflation adjustment doesn't cover actual inflation. And most SWR calculations assume that you deplete your portfolio after some given number of years.

Another way to estimate real-world returns is as follows: assume that the total of inflation adjustment plus coupon interest just covers actual inflation. That means your investment maintains its real value, just as if there was no inflation and you stuffed banknotes under your mattress.

Now, if you want to withdraw $100,000 per year for 30 years, you will need 30 x $100,000 in TIPS, or $3MM.

Whether it's a good idea to put all your portfolio in TIPS is another question, of course ...

Peter
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Re: TIPS as primary asset for retirement assets
Old 03-03-2005, 09:51 AM   #9
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Re: TIPS as primary asset for retirement assets

Yeah...the "results are encouraging" until you live 5 years past your portfolio.. :P

If you have $5M, there are better ways to approach the high withdrawal figure...as mentioned in the clone of this thread thats in another area of this forum.

$1M in a cd ladder and the rest in a 'total stock market' index. By historic return rates, you would not only avoid running out of money, you would die with a huge portfolio. Its even possible to almost double that withdrawal rate to $200k a year without running out.
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