Closet_Gamer
Thinks s/he gets paid by the post
Hi all.
Would like to get some feedback on a plan I’m hatching for long-term income.
Our situation:
Starting in 2025 and continuing through 2034 (when I will be 63), I will be receiving annual, lump sum, distributions from a non-qualified deferred compensation plan. We will be funding in-year expenses from those distributions and reinvesting the excess for future retirement years. In most years the after tax distributions will be 2-4 times what we need for in-year expenses. Our long term plan requires the re-investment of these funds. The structure of the deferred comp growth will almost certainly outpace any reasonable inflation scenario.
Short of megacorp going bankrupt, the deferred comp plan gives us guaranteed income from now until I am 63. I really like this long term stability and, in theory, the guaranteed nature of the income allows us to be more aggressive with the rest of the portfolio as we can ride out volatility.
I am thinking of building a TIPS ladder from 2035 to 2045 in order to continue that runway. I would do this by buying new, 10-year TIPS issues when my deferred compensation is distributed each year. The annual purchase would be sufficient to cover essential expenses plus 50% of our “nice to have” expenses.
From 2035 through 2045, I could either withdraw the TIPS money to live on or, if the balance of the portfolio was in good shape, roll the TIPS another 10 years and live off the remainder of the assets.
Practically speaking, I would do the TIPS purchases inside of a rollover IRA funded by my megacorp 401K which already has sufficient value to cover the 10 year TIPS ladder. The reason for making the TIPS purchases when the deferred comp is distributed is that it aligns with a general rebalancing of the portfolio due to the arrival of the new deferred comp money. The full value of the TIPS ladder would represent about 15% of our assets.
Excluding the deferred comp account, today, our AA is:
45% Lg Cap
15% Small Cap
20% International
20% Fixed Income (heavily tilted to CDs & Treasuries over a 5 year ladder)
Absent the long term TIPS strategy, I would have aimed to get to a 50/50 equity/fixed income AA by 2034 when the deferred comp ran out. With the TIPS strategy, I may be able to be more aggressive.
Two questions:
1 - Perspectives on the TIPS strategy? Pros/Cons? To me it feels like a do-it-yourself inflation adjusted pension or inflation protected deferred MYGA, without the insurance premium.
2 - With the guaranteed TIPS income, how should I approach the AA for the remainder of the portfolio? Stay more aggressive? Suggestions on AA?
Interesting aside: I’ve asked Charles Schwab to help model this and they were a deer in the headlights. Basically said this is a very interesting idea but they do not have the software/modeling assets to do a good job on this. I was really surprised.
Thanks for any thoughts you have.
Would like to get some feedback on a plan I’m hatching for long-term income.
Our situation:
Starting in 2025 and continuing through 2034 (when I will be 63), I will be receiving annual, lump sum, distributions from a non-qualified deferred compensation plan. We will be funding in-year expenses from those distributions and reinvesting the excess for future retirement years. In most years the after tax distributions will be 2-4 times what we need for in-year expenses. Our long term plan requires the re-investment of these funds. The structure of the deferred comp growth will almost certainly outpace any reasonable inflation scenario.
Short of megacorp going bankrupt, the deferred comp plan gives us guaranteed income from now until I am 63. I really like this long term stability and, in theory, the guaranteed nature of the income allows us to be more aggressive with the rest of the portfolio as we can ride out volatility.
I am thinking of building a TIPS ladder from 2035 to 2045 in order to continue that runway. I would do this by buying new, 10-year TIPS issues when my deferred compensation is distributed each year. The annual purchase would be sufficient to cover essential expenses plus 50% of our “nice to have” expenses.
From 2035 through 2045, I could either withdraw the TIPS money to live on or, if the balance of the portfolio was in good shape, roll the TIPS another 10 years and live off the remainder of the assets.
Practically speaking, I would do the TIPS purchases inside of a rollover IRA funded by my megacorp 401K which already has sufficient value to cover the 10 year TIPS ladder. The reason for making the TIPS purchases when the deferred comp is distributed is that it aligns with a general rebalancing of the portfolio due to the arrival of the new deferred comp money. The full value of the TIPS ladder would represent about 15% of our assets.
Excluding the deferred comp account, today, our AA is:
45% Lg Cap
15% Small Cap
20% International
20% Fixed Income (heavily tilted to CDs & Treasuries over a 5 year ladder)
Absent the long term TIPS strategy, I would have aimed to get to a 50/50 equity/fixed income AA by 2034 when the deferred comp ran out. With the TIPS strategy, I may be able to be more aggressive.
Two questions:
1 - Perspectives on the TIPS strategy? Pros/Cons? To me it feels like a do-it-yourself inflation adjusted pension or inflation protected deferred MYGA, without the insurance premium.
2 - With the guaranteed TIPS income, how should I approach the AA for the remainder of the portfolio? Stay more aggressive? Suggestions on AA?
Interesting aside: I’ve asked Charles Schwab to help model this and they were a deer in the headlights. Basically said this is a very interesting idea but they do not have the software/modeling assets to do a good job on this. I was really surprised.
Thanks for any thoughts you have.
