International Financial Planning Day was this week, and there’s rarely been a better time to set up a TIPS ladder Wall Street loves to make things seem more complicated than they need to be. International Financial Planning Day, which occurred this week, is an especially good time to remember this. Unscrupulous financial planners want us to believe we can’t, by ourselves, secure our financial security for retirement — and therefore we need them to do it for us.
That’s just not true, especially now, given the recent surge in TIPS yields. TIPS, of course, are the Treasury’s Inflation Protected Securities, and their quoted yields are above and beyond inflation. The 10-year TIPS is currently trading at a 3.0% real yield — nearly double where it stood 12 months ago.
The 30-year TIPS is yielding 3.4%, versus 2.5% one year ago. Because of these high yields, each of us can fairly easily create a guaranteed retirement income that significantly exceeds what financial planners had for years insisted is the most we could realistically expect — a 4% inflation-adjusted withdrawal for 30 years. This 4% rate traces to a 1994 article by William Bengen in the Journal of Financial Planning.
He arrived at that rate by calculating the lowest inflation-adjusted withdrawal rate that could nevertheless have been sustained by a 50% stock/50% bond portfolio in the worst 30-year period in U.S. history. This withdrawal rate, which Bengen referred as the SAFEMAX rate, has been controversial ever since, however. More recently, he’s argued that you can do better than 4% by diversifying into other classes.
Others argue that a 4% rate is anything but safe or assured. One study,co-authored by University of Arizona finance professor Richard Sias,argued that a true SAFEMAX rate would be closer to 1.9% than 4.0%. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
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