Ignoring taxes [1] if TIPS yielded 0% or more, $1,000,000 invested in a 20-year ladder [2] of them could provide $50,000 per year of constant dollar withdrawals. Unfortunately they currently yield significantly less than 0%. So I'd take part of the $1M to buy a TIPS ladder of

*less than 20 years* and invest the rest in stocks. After the TIPS ladder is over, I'd start withdrawing $50K each year from the stock portfolio.

The following table shows, for various length TIPS ladders, what real return would be needed on the stocks for this to work. For example, if stocks grew at least 1.6% annually over the 20 years, this approach would work with $814K invested in a 15-year TIPS ladder and the remaining $186K invested in stocks.

Code: Select all

```
Row Col A Col B Col C Col D Col E Col F Col G formula in column B
1 Total years 20
2 Total investment 1,000,000
3 Annual withdrawal 50,000
4 Years from TIPS 5 10 15 16 17 18
5 TIPS return [3] -1.250% -1.125% -1.000% -1.000% -1.000% -1.000%
6 Stocks return [4] +0.100% +0.433% +1.645% +2.456% +4.223% +13.496%
7 TIPS investment 259,655 532,382 813,559 872,282 931,598 991,513 =-PV(B5,B4,$B3,0,0)
8 Stock investment 740,345 467,618 186,441 127,718 68,402 8,487 =$B2-B7
9 Stocks grow to 744,046 488,285 238,124 188,299 138,171 82,870 =B8*(1+B6)^B4
10 Withdrawal provided 50,000 50,000 50,000 50,000 50,000 50,000 =PMT(B6,$B1-B4,-B9,0,0)
```

- Incorporating taxes would complicate the model considerably. For one thing it would be necessary to estimate inflation since the TIPS inflation-adjustment to principal is taxed.
- Unfortunately one can't currently construct a TIPS ladder of more than 10 years with one TIPS maturing every year. However, it is possible to approximate such ladders by buying multiple amounts of some years (e.g., 2030, 2032, and 2040) to "cover" the years when no TIPS mature (2031 and 2033-2039). I did this using my TIPS Ladder Builder Excel workbook.
- I got the TIPS returns shown on row 5 in the table from the Ladder Builder workbook for 5, 10, and 15 years.
- I backed into the Stocks returns shown on row 6 in the table using Excel's Goal Seek tool to force the withdrawal on row 10 to come out to $50K.