The 4% rule just became a whole lot easier - Allan Roth

[RetMD21]

4.3% safe withdrawal rate for 30 years

From a few days ago but I didn't see it posted. The key is TIPS

https://www.advisorperspectives.com/articles/2022/10/24/the-4-rule-just-became-a-whole-lot-easier

Author Allan Roth.

 

[kevink]

Ordinarily I'd avoid cross-posting but the article by the well-known financial advisor Allan Roth and subsequent high-level commentary (including post by Mr. Roth and William Bernstein) seem to me to be worth sharing:

https://www.bogleheads.org/forum/viewtopic.php?t=388845

As usual @ Bogleheads some of the discussion is pretty esoteric but among usable take-aways for me anyway are that opportunities like this in the TIPS market come along fairly rarely and deserve careful consideration. Dr. Bernstein (you have to scroll down aways before you'll see him chiming in) has long recommended TIPS as the core of a liability-matching portfolio, but back in the old days (i.e. 3-4 months ago or before) it was hard to get excited about buying them at negative real yields. Fast-forward to today and one can do what Mr. Roth is doing: construct a 30 year ladder that supports a ~4.3% withdrawal rate (better, in his estimation, than we can expect from a typical balanced stock-and-bond portfolio going forward).

It seems to me that this approach may make even more sense for those of us with modest nest eggs who might otherwise choose a fairly conservative allocation like Wellesley or a bond-heavy target-date or income fund. Hard to beat a 4%+ real return with no need to worry about waiting out market crashes or whether or not the dismal predictions for low returns from equities and conventional bonds for the next few decades come true or not.

 

[braumeister]

It seems to me that this approach may make even more sense for those of us with modest nest eggs who might otherwise choose a fairly conservative allocation like Wellesley or a bond-heavy target-date or income fund. Hard to beat a 4%+ real return with no need to worry about waiting out market crashes or whether or not the dismal predictions for low returns from equities and conventional bonds for the next few decades come true or not.

Good reference. But I think you also have to be fairly comfortable that your personal inflation rate won't be any worse than the official one.

 

[OldShooter]

Good reference. But I think you also have to be fairly comfortable that your personal inflation rate won't be any worse than the official one.

Well, maybe. If you are not "comfortable" then you should invest in something that guarantees returns that better approximate your personal inflation rate. Absent such an option, you are back to TIPS I think.

Personally, I think talk of personal inflation rates is interesting but of very little practical use for investors.

 

[Sunset]

Interesting reading...
I do note in post His Post Allen Roth states: " And I did not change my allocations from my target of 45% stocks and 55% fixed income."

So it seems that he moved his fixed income or a portion of it over to the TIP ladder. He is not abandoning stocks, but does appear to like the security of: "between the TIPS ladder and social security, we have enough inflation adjusted cash flow to easily get by, no matter what happens to markets. "

 

[kevink]

Yes, he mentions that he’s already added to his 100K initial purchase, and that his goal is to cover all of he and his wife’s essential expenses with the TIPS ladder plus SS.

I like the idea of a modified 3 fund portfolio with most or all of one’s fixed income in the TIPS ladder and diversified equities in, say, VT or a mixture of VTI and VXUS for growth. Need to have a lot of room in tax-deferred accounts to implement this efficiently.

 

[jazz4cash]

Not sure which came first but I think it is same topic.
The 4% rule just became a whole lot easier - Allan Roth
https://www.early-retirement.org/forums/showthread.php?t=115773

 

[Chuckanut]

I read the article on using TIPS to get that 4.3% withdrawal for 30 years in real terms.

I have to admit it seems rather complicated to me and hard for the layman to understand. I like simple investing where I won't make a mistake based upon misunderstanding or ignorance. Ordinary Bond ladders I can understand. His TIPS bond ladder with it's gaps at certain points confuses the heck out of me.

Or am I over complicating this?

 

[MichaelB]

I read the article on using TIPS to get that 4.3% withdrawal for 30 years in real terms.

I have to admit it seems rather complicated to me and hard for the layman to understand. I like simple investing where I won't make a mistake based upon misunderstanding or ignorance. Ordinary Bond ladders I can understand. His TIPS bond ladder with it's gaps at certain points confuses the heck out of me.

Or am I over complicating this?

I think he is, not you. In addition to the poorly explained gap, some of the TIPs he adds to his ladder are from the secondary market and could be redeemed for a lower value. This deflation risk is not mentioned but still very real.

Current new TIPs have a positive yield right now, first time in many years, so it might make sense to move some of one’s fixed income allocation there - as long as it is in a tax deferred account.

 

[Sunset]

..

Current new TIPs have a positive yield right now, first time in many years, so it might make sense to move some of one’s fixed income allocation there - as long as it is in a tax deferred account.

Since we previously had no TIPs, and now that I've heard of them.
I am buying a small amount in tax deferred accounts, over the years I'd like to get a good sized amount, might even be clever and try to match some of the terms to RMD time.

 

[daylatedollarshort]

We have been TIPS fans since we retired. I have been posting the last few months how the yields are much higher than I bonds. Others have posted about about how much money they have lost this year, which of course is not true, as long as you hold to maturity, which is a basic part of holding a ladder.

I agree with the article concept. TIPS yields were at rates similar to today when we retired and we thought that fit perfectly for our needs.

You have to hold individual TIPS for the guaranteed 4.3% return. TIPS funds are much more volatile than individual TIPS. With the funds you don't know what the future price will be when you want to sell. They may or may not keep up with inflation. There is an excerpt here from The Bond Book here that explains that in more detail - https://www.early-retirement.org/fo...d-john-lim-on-bonds-115578-3.html#post2841107

 

[RetMD21]

This one was posted first but maybe should be deleted?

 

[audreyh1]

A mod will merge them.

 

[Trailwalker]

TIPs

They always seemed too complicated to mess with, but I think I understand TIPs better now. I plan to dip my tax-deferred toes in for the 5 year re-opened auction in December.

 

[MichaelB]

Threads merged