In your example, the TIPS ladder is funding a relatively few years.I think that's the general idea.I’m not understanding how someone can determine their future annual liabilities beyond creating a minimum income floor that someone feels is needed to cover basic needs plus a small buffer.
Say, someone has figured that they'll be OK with Social Security, or their pension and Social Security, or some such scheme. But they're going to wait five years between retiring at 65 and starting Social Security at 70, for maximum Social Security. Their Social Security will be 50K (in today's dollars), so they need 50K a year (based on today's dollars) that they can safely spend. When the moment comes, they will have no choice but to spend that money on food, shelter, health insurance, etc.--or start Social Security early and thus lose out on a lifetime of higher payments.
They don't want to wait for that moment to come and discover that the stock market is down right then, forcing them to sell their stock holdings at a low price, because then that portion of their holdings will be gone and they won't be able to ride the market back up.
Instead, they pre-fund a TIPS ladder before retirement, at a time while stocks are doing OK. They invest 50K X 5 years=250K in a TIPS ladder. Yes, it's out of the stock market then, but it is protecting their stock holdings from being raided during the gap between retirement and age 70.
People similarly plan ahead to pay for their health insurance expenses in the gap between retirement and Medicare. And so on.In the above, we're not talking about millions--you don't normally live on the interest from a TIPS ladder; you live on the principal. And some people have enough money to follow the above logic for a period longer than five/ten years. At a quarter million per five years, one million in a TIPS ladder would allow them to ride out a twenty year stock market crash, protecting their stock holdings and waiting to, again, ride their stocks back up.Asking someone with limited resources to invest millions in long term TIPS to pay for a 30 year lifestyle seems like a waisted opportunity to invest in equities, unless you have already won the game and just want to sleep well at night.
Just ran $250k through tipsladder.com and that provides a little under $8400 a year for 2025 through 2054, if purchased now. So someone wanting a 30 year TIPS ladder is probably going have to think about spending a lot more than that.
Statistics: Posted by AlwaysLearningMore — Thu May 30, 2024 7:30 pm — Replies 200 — Views 14052