Poll:Are you in the "Won The Game" Club with reference to Fixed Income Investing?

[marko]

The 4% WR works when the initial budget increases at the same rate as CPI. My point is, in order to enjoy the constantly improving standard of living, we may need a bit more spending above inflation.

+1
As I mentioned a bit earlier, over time how we as a culture live evolves and changes and those changes reflect not only a changed standard of living but a slightly different cost of living as well.

For example, years ago there were no cell phones, Netflix etc and their added cost to what we now consider living "well".

In my parent's and grandparent's day they lived entirely different retirement lives than I do today. It was a good life for them in that day but I really wouldn't want to live a 1950's retirement life. (TV was free, but does only 3 channels sound like fun?)

We have no idea what new costs lie ahead in order to keep up with an ever improving standard of living. I'd hate to have to project expenses 30, 40 or 50 years out from now.

 

[Jolleyjohn]

The 4% WR works when the initial budget increases at the same rate as CPI. My point is, in order to enjoy the constantly improving standard of living, we may need a bit more spending above inflation. In real life this is difficult to test, because 1) we don’t know the additional cost of that SoL improvement, and 2) we are constantly adjusting our spending choices in response to price changes and new spending.

My concern would be a portfolio that can only provide for initial spending plus (inflation minus taxes) for the retirement horizon. For example, if the initial budget is $50k, and the portfolio is $1.5M, imvested in TIPs, with $50k plus inflation maturing each year. This portfolio will cover the initial spending plus CPI, but it will lose to improvements in the standard of living and any personal inflation in excess of CPI.

I can't for the life of me understand why anyone would want $1.5m invested in TIPs? There are much better investments out there that are just as safe. Anyone should be able to get at least 5 or 6% from income investments and around 10% growth from a mixed portfolio. So on 1.5m there is no reason why there shouldn't be plenty to live on plus meet inflation and save some aside to improve standard of living.

 

[daylatedollarshort]

The 4% WR works when the initial budget increases at the same rate as CPI. My point is, in order to enjoy the constantly improving standard of living, we may need a bit more spending above inflation. In real life this is difficult to test, because 1) we don’t know the additional cost of that SoL improvement, and 2) we are constantly adjusting our spending choices in response to price changes and new spending.

My concern would be a portfolio that can only provide for initial spending plus (inflation minus taxes) for the retirement horizon. For example, if the initial budget is $50k, and the portfolio is $1.5M, imvested in TIPs, with $50k plus inflation maturing each year. This portfolio will cover the initial spending plus CPI, but it will lose to improvements in the standard of living and any personal inflation in excess of CPI.

But if a retiree's budget is $50K and they have $75K in pensions, rental income and Social Security, and a $800K mortgage free home, then some here might be fine with a TIPS /CDs kind of portfolio for the $1.5K portfolio. Shokwavrider can correct me if I'm wrong, but I think that is kind of the gist of this and his other threads on the subject. And a retiree household like that would probably have to have several big calamities during retirement happen to ever run out of money. Not quite the $1B / $50K spending level of safety, but still pretty far into the pretty safe bet they don't have to ever worry about running out of money side of the continuum.

 

[njhowie]

I can't for the life of me understand why anyone would want $1.5m invested in TIPs? There are much better investments out there that are just as safe. Anyone should be able to get at least 5 or 6% from income investments and around 10% growth from a mixed portfolio. So on 1.5m there is no reason why there shouldn't be plenty to live on plus meet inflation and save some aside to improve standard of living.

Ahem - what income investment is going to give you 5 or 6% and is just as safe as treasury securities?

 

[daylatedollarshort]

I can't for the life of me understand why anyone would want $1.5m invested in TIPs? There are much better investments out there that are just as safe. Anyone should be able to get at least 5 or 6% from income investments and around 10% growth from a mixed portfolio. So on 1.5m there is no reason why there shouldn't be plenty to live on plus meet inflation and save some aside to improve standard of living.

What better investments are just as safe as inflation protected Treasuries, are government backed and pay 5 - 6% with a guarantee a return of principal if held to maturity?

TIPS are low right now along with other bonds but many here with ladders probably have some 30 year TIPS at 2 - 3% + inflation.

 

[samclem]

What better investments are just as safe as inflation protected Treasuries that pay 5 - 6% and guarantee a return of principal if held to maturity?

I often see the totally passive investments like a car wash, laundromat, or low income housing.
Sometimes it is risk- free opportunities like peer-to-peer lending or government bonds-- from Zimbabwe, etc.

 

[MichaelB]

I can't for the life of me understand why anyone would want $1.5m invested in TIPs? There are much better investments out there that are just as safe. Anyone should be able to get at least 5 or 6% from income investments and around 10% growth from a mixed portfolio. So on 1.5m there is no reason why there shouldn't be plenty to live on plus meet inflation and save some aside to improve standard of living.

Jolleyjohn, why don’t you stop by and introduce yourself here Hi, I am... - Early Retirement & Financial Independence Community

Ahem - what income investment is going to give you 5 or 6% and is just as safe as treasury securities?

Very good question

But if a retiree's budget is $50K and they have $75K in pensions, rental income and Social Security, and a $800K mortgage free home, then some here might be fine with a TIPS /CDs kind of portfolio for the $1.5K portfolio. Shokwavrider can correct me if I'm wrong, but I think that is kind of the gist of this and his other threads on the subject. And a retiree household like that would probably have to have several big calamities during retirement happen to ever run out of money. Not quite the $1B / $50K spending level of safety, but still pretty far into the pretty safe bet they don't have to ever worry about running out of money side of the continuum.

The OP and poll question of this thread only considers two options, fixed income and equity, and that’s been the focus of the discussion so far.

 

[daylatedollarshort]

The OP and poll question of this thread only considers two options, fixed income and equity, and that’s been the focus of the discussion so far.

Okay, then you can consider $5M portfolio and $50K spend with no other assets or income as an option, though I'm not sure why anyone would ignore pensions, SS, rental or other income in deciding what return on their portfolio is good enough to support their retirement lifestyle.

 

[Lawrencewendall]

Ahem - what income investment is going to give you 5 or 6% and is just as safe as treasury securities?

I don't know about risk versus TIPS but FIDO's Total US market (FSTMX now FSKAX) has pulled >7% annually on average since 1997 which includes the .com bust and the housing bust. Their new FZROX is the same but with no minimum and no fees.

 

[Jolleyjohn]

What better investments are just as safe as inflation protected Treasuries, are government backed and pay 5 - 6% with a guarantee a return of principal if held to maturity?

TIPS are low right now along with other bonds but many here with ladders probably have some 30 year TIPS at 2 - 3% + inflation.

There are a bunch of alternative investments out there right now that (in my opinion) are just as safe as government issued debt (especially with the broke US government). One thing that a lot of folks miss are the P2P lending markets. Here in the USA companies like Prosper and Lending Club are not a good representation of the world P2P markets. In the UK for instance, P2P is regulated similar to banks and provides people with a steady 5% - 6% with relative safety. Look here for example where income from actual investment returns are published monthly. Almost 6% for regulated debt income is very reasonable. If you want a bit of risk though (although still very low in my opinion) you could go for euro P2P lending which is not regulated but pays incomes of 13% to 18% (this guy publishes these kind of returns too, look at the XIRR).

Either way, it's better than you're going to get on TIPs all day long.

 

[njhowie]

I don't know about risk versus TIPS but FIDO's Total US market (FSTMX now FSKAX) has pulled >7% annually on average since 1997 which includes the .com bust and the housing bust. Their new FZROX is the same but with no minimum and no fees.

Thanks - that's good info, but certainly not near the safety of treasury securities.

 

[njhowie]

There are a bunch of alternative investments out there right now that (in my opinion) are just as safe as government issued debt (especially with the broke US government). One thing that a lot of folks miss are the P2P lending markets. Here in the USA companies like Prosper and Lending Club are not a good representation of the world P2P markets. In the UK for instance, P2P is regulated similar to banks and provides people with a steady 5% - 6% with relative safety. Look here for example where income from actual investment returns are published monthly. Almost 6% for regulated debt income is very reasonable. If you want a bit of risk though (although still very low in my opinion) you could go for euro P2P lending which is not regulated but pays incomes of 13% to 18% (this guy publishes these kind of returns too, look at the XIRR).

Either way, it's better than you're going to get on TIPs all day long.

You can believe whatever you like. However, you are not getting those returns without a corresponding level of risk. End of story.

 

[Markola]

I'm pretty sure the graph is the standard "efficient frontier" depiction for some time period.
"Risk" is shorthand for "portfolio volatility expressed as standard deviation in portfolio value."


As seen in the chart below, things can vary a lot depending on what time period is chosen. (in the chart below, "B" = 100% bonds, "S" = 100% stocks. Each dot on each line is a 10% increment: 10/90, 20/80, etc)

That was a great chart. I didn’t know the Efficient Frontier was so relative to the time period and more like Efficient Frontiers.

 

[ShokWaveRider]

We won, FireCalc Said so....

 

[GravitySucks]

And if you are dead you lost the game anyway eh?

Not here. This is the only place I visit where dying is winning.

 

[Stonewalker]

+1
(TV was free, but does only 3 channels sound like fun?)

That bit about TV made me laugh, so thanks for that. Funny thing is, we have dozens of channels and nothing really good to watch.

 

[Offgrid Organic Farmer]

Our primary investment was an apartment complex at each of my duty stations [while serving on Active Duty]. After I retired from the US military, we liquidated those and we bought our first single-family dwelling with cash [bare land and I built a house].

We have never had any investment in CD's, Bonds, Treasuries, Stocks, Mutual Funds.

In 2016 we decided to get back into a rental property and we bought a commercial building that we are remodeling. A local non-profit business incubator has done a business plan for us, they estimate that we should see 16% return on investment each year with this property, once the remodeling is completed.

 

[LARRY G]

Very conservative here and am all bonds and cd's. We saved enough 401k, ira and roth's so with SS we only need to draw 3.5% from investments. Pay no taxes so far. Been retired for 9 years and I did not retire early so that helped. As long as inflation doesn't get out of hand we will be fine until we get to 100. We still travel to Maui every year and Vegas every other year and that works for us.

 

[MRSPOCK]

Want to sleep well at night. Pension and SS cover more than I need so I'm 15/85

 

[foxfirev5]

You can believe whatever you like. However, you are not getting those returns without a corresponding level of risk. End of story.

Yeah, and I thought I was going to learn something tonight.

 

[LARRY G]

One more thing. It is all about risk and sleeping at night. If you don't need to take on more risk (stocks) then why take the risk. If you have to take unnecessary risk you probably retired too early.

 

[Offgrid Organic Farmer]

There is always some level of risk to investing.

I am comfortable with apartment complexes. We did really well with rentals for years. But during the recession, we lost all our tenants and we still had a mortgage of service. That got ugly for us.

Now as we are going back into rentals, we are doing it without the mortgage. So if another recession hits, at least it will not be a mortgage company after us, this time.

 

[nbseer]

98% in short-term cds paying average 2.5%. Won the game, and while I have the ability to take risk by owning stocks, do not have the need nor the desire to assume that risk.. would rather have return 'of' principal, rather than return 'on' principal.

 

[MRSPOCK]

I guess it comes down to how much money is enough. If I have more than enough now with virtually no risk, why stay in the risk game. 15/85 is good enough for me. I will still be buried the same way- no money in my pockets

 

[jasg]

We've been retired for ten years up have always lived below our means. This continues in retirement. RMDs and SS gives a comfortable life.

Until four years into retirement, our AA was 95/5. Now 16% of our portfolio is in TREA and the remainder is 55/45 (with a big part of the 45 in TIAA TRAD stable value). We have 10 years of expected RMDs outside the conventional stock/bond metric.

I feel like we have won in the sense that we have money to live on that is not subject to the market. However, our dollar value at risk in equities has remained the same for the last ten years.

I can sleep well with that and expect growth in our estate for the kids.