grok87 wrote: ↑Fri Apr 20, 2018 8:18 pm
Snowjob wrote: ↑Fri Apr 20, 2018 5:57 am
Yes I agree with this approach, save normally but use TIP's for the majority of your bond component, I think that is the only way for someone to get there unless you have tons of income you don't know what to do with. Saving your TIP's run each year for 30 years in retirement is pretty inefficient and for most people unrealistic.
Thanks.
Well let's dig into this a bit perhaps...
So again, as per this post
viewtopic.php?t=245377
If one does not have a pension, I'm advocating building a tips ladder to replace 1/6th of your salary. When to start is debatable but let's say you start 30 years before retirement and build each rung a year at at time (as opposed to say starting 15 years before retirement and building two rungs each year).
let's use some actual numbers so we can follow the math:
Age 35
Salary: $90k
Target real income per year in 30 years: $15 k
Assumed 30 year tips real yield: 1%
Discount Factor for present value of $15k = 1/1.01^30 = 0.742
Amount to invest in 30 year tips now: $15k * 0.742 = $11.1 k
so the question is how realistic is it to save $11.1k per year in TIPS?
Well lets assume you save 20% per year for retirement and get an employer match of 6% for a total of 26% or $23.4 k. You could put $11.1k of this in the TIPs and the other $12.3k in stocks. That seems a bit conservative to start at 53/47. But of course that ignores any retirement savings that one may have built up before age 35. Let's assume this prior amount totals to $230k. So now you have $230k + $23.4k or $253.4 k. if one follows age in bonds then your target bond allocation would be 35% of that or $88.7 k. So the $11.1k of 30 year tips would only represent about 12.5% of ones bonds.
Funny, I can relate that age / salary profile remarkably well.
My assumptions
- Soc. Sec. 20k (we are supposed to get that haircut, and I may not make 65 at the same salary level so have been using 20k as a reasonable assumption
- Pension 0k (this is where the TIP's come in, I'd need 20k a year to replace this
- Risk portfolio -- everything else.
So using that 20k and your 1% tips assumption, we need to save about 15k a year for TIPs for 30 years which is nearly 17%. Matching on the 401k is only 3%. so saving at a rouhly 50/50 ratio would require total contributions of 14% +3% match in stock +17% tips. Thats 31% of income.
Given the other costs -- student loans, housing, raising kids, life etc its a hard sell.
Its doable, you are buying security each step of the way at the cost of expected growth, and by doing so exposing yourself to employment risk those last 10-15 years when you are in your 50s and 60s and may not have the income stability to finish the job. Nothings perfect. I guess Id rather just go 80-20 or 75-25 from the start Equities & Tips and just save as much as I can, hope for the best and if I make it to my 50% with enough, convert some of that extra $ to the tips ladder.