low-rate environment for the rest of our lives ?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
tc101
Posts: 3809
Joined: Tue Feb 20, 2007 2:18 pm
Location: Atlanta - Retired in 2004 at age 54

low-rate environment for the rest of our lives ?

Post by tc101 »

This is just one man's opinion, but something to think about
“Our longer-term, secular view is that we’re in a low-rate environment for the rest of our lives,” said Michael Collins, senior investment officer at Prudential Fixed Income and co-manager of the Prudential Total Return Bond Fund
If this is true, how does it effect our retirement?

Even with 0 real growth, a 4% withdrawel rate should last 25 years.

I am 62. The probability of my living another 25 years is low. However if the 55% of my portfolio in fixed income actually declines a lot due to returns much lower than inflation then I may end up with a lower standard of living some day.
. | The most important thing you should know about me is that I am not an expert.
Call_Me_Op
Posts: 9872
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: low-rate environment for the rest of our lives ?

Post by Call_Me_Op »

If equities provide their historical 7% real over the long term, that will help a lot on offsetting the negative real rates on fixed-income should it persist.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
User avatar
bengal22
Posts: 2146
Joined: Sat Dec 03, 2011 5:20 pm
Location: Ohio

Re: low-rate environment for the rest of our lives ?

Post by bengal22 »

tc101 wrote:This is just one man's opinion, but something to think about
“Our longer-term, secular view is that we’re in a low-rate environment for the rest of our lives,” said Michael Collins, senior investment officer at Prudential Fixed Income and co-manager of the Prudential Total Return Bond Fund
If this is true, how does it effect our retirement?

Even with 0 real growth, a 4% withdrawel rate should last 25 years.

I am 62. The probability of my living another 25 years is low. However if the 55% of my portfolio in fixed income actually declines a lot due to returns much lower than inflation then I may end up with a lower standard of living some day.
1. Predicting interest rates accurately for the "rest of our life" is impossible unless one is the proverbial old man with one foot on a bananna peel.

2. Why have 55% in fixed income at 62. Recommend a 50/50AA or 40/60AA.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
NYBoglehead
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: low-rate environment for the rest of our lives ?

Post by NYBoglehead »

I wouldn't recommend being 100% in fixed income anyway. I think keeping 20% equities into retirement should provide some protection against inflation and will let you participate in any price appreciation along the way. But 20% should be the floor on equities, I'd recommend you have closer to 40% given your age.

4% withdrawal without any growth would only fund 25 years if you kept spending the exact same amount every year and didn't increase spending to account for inflation. Doesn't mean you can't do it, just be aware. That said, if you've got Social Security the annual increases in your benefit might be enough to cover any increase in spending and you'll be alright.

I wouldn't assume low rates for life. People also assumed that housing prices would rise in perpetuity and it led to a severe recession.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: low-rate environment for the rest of our lives ?

Post by Grt2bOutdoors »

If I depart today - then yes it was for the rest of my life. If not, then it's all noise.

One other thing - if what he said is true, then he should be afraid, very afraid since there is no need to pay someone to manage fixed income yielding nil.
Last edited by Grt2bOutdoors on Wed Jan 02, 2013 11:56 am, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
lloydbraun
Posts: 101
Joined: Mon May 30, 2011 9:14 pm

Re: low-rate environment for the rest of our lives ?

Post by lloydbraun »

People in the early 80s thought that a high interest rate environment was here to stay. Predicting interest rate changes requires a combination of correctly predicting the country's future GDP growth, unemployment, Fed panel members' economic beliefs, and the state of the global economy as global developments continue to have a more significant impact on the U.S. economy every year. If you can get all of that right you can accurately predict future interest rates.
User avatar
Topic Author
tc101
Posts: 3809
Joined: Tue Feb 20, 2007 2:18 pm
Location: Atlanta - Retired in 2004 at age 54

Re: low-rate environment for the rest of our lives ?

Post by tc101 »

Why have 55% in fixed income at 62. Recommend a 50/50AA or 40/60AA
20% should be the floor on equities, I'd recommend you have closer to 40% given your age.
You are probably both smart guys. Recommendations vary. Bogle's "age in bonds" recommendation would put me at 38% equities. I picked the 45% equity allocation a few years ago and will stick with it for now, just for the sake of staying the course.
Last edited by tc101 on Wed Jan 02, 2013 12:10 pm, edited 1 time in total.
. | The most important thing you should know about me is that I am not an expert.
User avatar
Topic Author
tc101
Posts: 3809
Joined: Tue Feb 20, 2007 2:18 pm
Location: Atlanta - Retired in 2004 at age 54

Re: low-rate environment for the rest of our lives ?

Post by tc101 »

4% withdrawal without any growth would only fund 25 years if you kept spending the exact same amount every year and didn't increase spending to account for inflation.
I may have been using the wrong terminology when I said:
Even with 0 real growth, a 4% withdrawal rate should last 25 years.
What I meant by "0 real growth" was that it keeps up with inflation.
. | The most important thing you should know about me is that I am not an expert.
NYBoglehead
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: low-rate environment for the rest of our lives ?

Post by NYBoglehead »

tc101 wrote:
4% withdrawal without any growth would only fund 25 years if you kept spending the exact same amount every year and didn't increase spending to account for inflation.
I may have been using the wrong terminology when I said:
Even with 0 real growth, a 4% withdrawal rate should last 25 years.
What I meant by "0 real growth" was that it keeps up with inflation.
Got it. I apologize for making the assumption that your "zero growth" statement meant the other 45% was in cash.
Call_Me_Op
Posts: 9872
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: low-rate environment for the rest of our lives ?

Post by Call_Me_Op »

tc101 wrote: Bogle's "age in bonds" recommendation would put me at 38%.
Above, you stated that you are 62. :confused
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
User avatar
Topic Author
tc101
Posts: 3809
Joined: Tue Feb 20, 2007 2:18 pm
Location: Atlanta - Retired in 2004 at age 54

Re: low-rate environment for the rest of our lives ?

Post by tc101 »

tc101 wrote: Bogle's "age in bonds" recommendation would put me at 38%.

Above, you stated that you are 62.
Another senior moment. That's why I am a "retired" software engineer. I meant 38% equities. I'll edit that post. Thanks.
. | The most important thing you should know about me is that I am not an expert.
NYBoglehead
Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: low-rate environment for the rest of our lives ?

Post by NYBoglehead »

Call_Me_Op wrote:
tc101 wrote: Bogle's "age in bonds" recommendation would put me at 38%.
Above, you stated that you are 62. :confused
He was referring to being 38% in equities.
Post Reply