SWRs from 100% US TIPs portfolio update

Contrary to the overwhelming consensus at the beginning of the year, bonds have done remarkably well year to date. With that in mind I wanted to update the SWRs for the 100% US TIPs retirement portfolio I presented last year. With rates down, SWRs will be down as well but lets see by how much.

The updated SWRs from a 100% US TIPs bond ladder are shown below. I also compare them to the SWRs from my previous analysis plus the SWRs from various risky portfolios.

TIPS Model Aug 2014

As the bottom table shows, the SWRs for a 100% US TIPs bond ladder went down from 4.37% to 4.20% for a 30 year retirement period. This still compares very well to the historical SWRs from the risky portfolios. Although you almost never see this option discussed as retirement portfolio option (no one can make a lot of fees off this model), the results could be very compelling for the most risk adverse retirees.

Note: I’ve uploaded my detailed spreadsheet model here for anyone that is interested. You need to be familiar with Excel’s solver function to run the analysis for yourself.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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2 Responses to SWRs from 100% US TIPs portfolio update

  1. vallandmo says:

    Paul, thanks for the very interesting and thought-provoking article. One question: what’s the “0% real” column in both tables? I think it’s the SWR for a “cash-only” portfolio, discounting inflation, but please confirm. Another question: have you considered taxes? I ask because AFAIK US taxes are different for stock gains vs bonds…

    • libertatemamo says:

      The 0% real column is what the SWRs would be at a 0% real return, i.e. after inflation. A cash-only portfolio in a regular bank account would have negative real returns these days. Taxes are complicated and none of the retirement strategies explicitly take them into account. The risky portfolio SWRs in the first table for example are all pre-tax as well. But I will say, that in a general sense, TIPs are just as tax friendly or unfriendly as US treasuries. You pay federal tax on both and both are immune from state and local taxes.


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