Liability-Matching Portfolio?

[Kevin K.]

Since Harry Browne specifically recommended using the PP for "money you can't afford to lose" one could argue that it was an early version of what William Bernstein and many others call a liability-matching portfolio (LMP), except of course that it's really a probabalistic portfolio.

Pre-2022 using a TIPS ladder for LMP purposes made no sense because TIPS real returns were negative, but with the sharp spike in interest rates since then it has been (and remains) possible to construct a 30 year TIPS ladder with an inflation-adjusted SWR well above 4%. As a retiree I've often thought about going that route but have found plenty of reasons not to:

1. According to Portfolio Charts the historic SWR for the P.P. is 5.4% (6.0% for the GB).
2. Putting all (or most) of your nest egg in TIPS means trusting one entity (the U.S. Government) for your economic survival.
3. No flexibility: you have to hold the bonds to maturity no matter what, meaning if that unexpected expenses necessitate selling all or part of the ladder you may have to take a major haircut if interest rates have spiked over a multi-decade holding period.

Still even with those negatives (and others) it's hard not to be impressed with a formula of 60-70% TIPS with the rest in equities:

https://www.morningstar.com/columns/rek ... est-friend

Since the PP and its variants seem to draw the same kind of risk-averse folks as TIPS I'm curious about whether any PP'ers are using them in their VP.

[boglerdude]

Browne was libertarian. We went apeshit in 2020 and he'd have lost (more) faith in authority.

1.2% fixed on iBonds while M2 has been 7%. iBonds should be giving a healthy return over inflation because they're for the little guy. Well its consolation watching countries like Canada vote for more socialism. US still the cleanest dirty shirt

edit1 for substance: Vanguard - No More SpecID for Limit Orders https://www.bogleheads.org/forum/viewtopic.php?t=447407

[Jack Jones]

I'm not using TIPS, but I do find the liability-matching strategy appealing. I set up a nominal bond ladder to cover my mortgage expense from age 59 until it is paid off.

I may build out a TIPS ladder for the property tax expense at some point, but Tyler's article has given me pause:

https://portfoliocharts.com/2022/09/27/ ... ectations/

I like the thought that even if some calamity takes out the entire US stock market, I wouldn't have to fear homelessness. However, a healthy serving of gold serves the same purpose. Frank Vazquez' simplicity principle, and Rick Ferri's, "Simplicity is an alpha" has me sticking to gold, LTT, and stocks for my retirement assets.

[Kevin K.]

IMHO Tyler's article on TIPS goes out of its way to paint a negative picture of them based on the performance of TIPS funds in 2022, while giving only a cursory nod to both their only appropriate use (in a ladder of individual bonds held to maturity to cover specific known expenses) and the opportunity they have offered (and continue to offer) for a 5% SWR at current yields. That's the focus of the John Reckenthaler Morningstar article I shared.

Essentially a TIPS ladder is buying an inflation-adjusted annuity from the government. Another way to think of it would be as buying an additional Social Security benefit, except that the ladder of course doesn't last as long as you live. The only alternative is buying a plain vanilla annuity (SPIA) which isn't inflation-adjusted and which involves fully trusting one or more insurance companies to stay solvent and pay up.

The PP or GB, conservative as they are, are still probabilistic risk portfolios, and their historical returns as shown on Portfolio Charts are skewed in their favor because the gold data, which should start in 1975 which was the first year private ownership of it was feasible in the U.S., instead starts in 1970. Remove that bias and you'd have been better off with a plain vanilla 60:40 or any number of other portfolios:

https://www.portfoliovisualizer.com/bac ... YYCf5iP1Lm

As for LTT's, if you think you'd have regretted owning TIPS funds in 2022 then you'd have just loved the -32% return for TLT that same year.

I spent well over two years thinking about and researching this stuff before finally pulling the trigger on a TIPS ladder. The ladder and SS combined cover our essential living expenses while leaving plenty of room for diversified global equities, cash and short-term nominal Treasuries in the risk portfolio.

The other thing that's been really helpful to me in all of this is jettisoning the entire "safe" withdrawal rate mindset in favor of an amortization approach, which is so much more realistic and useful. https://tpawplanner.com is a fantastic tool for this purpose.

[mathjak107]

we use bob clyatts 95/5 dynamic method of withdrawal. we have been retired 10 years and find it as simple as can be .

we simply set our goalposts at 4% of the actually balance each year on dec31 .

in the event of a down year like 2022 you take the higher of : 4% of the balance or 5% less then you took the year before .

done :::: it is simple , it requires no extra inflation adjusting and it rewards you in up years

[ochotona]

we use bob clyatts 95/5 dynamic method of withdrawal. we have been retired 10 years and find it as simple as can be .
we simply set our goalposts at 4% of the actually balance each year on dec31 .
in the event of a down year like 2022 you take the higher of : 4% of the balance or 5% less then you took the year before .
done :::: it is simple , it requires no extra inflation adjusting and it rewards you in up years

I really like Clyatt's approach. Although I used Flexible Retirement Planner and Fidelity's retirement tool and taking the more conservative of the two (on any given day, the most conservative is Fidelity), I'm planning on running Clyatt's 95% method on a spreadsheet as a reality check. I retire pretty much on 3/31/2026. It's coming

[mathjak107]

after a decade drawing down our balance is higher than ever . we now have ten years left to feed .

so we really don’t watch spending anymore .

but we do gauge ourselves with 95/5 each year .

we seem to average the same draw range year after year despite our spending which includes a lot of eating out and bringing in food since we have so many fabulous places and we are out daily somewhere doing our photography thing since we both are photographers.

so we show we go thru about 140-160k a year doing all our stuff .

but we show our income capability to be almost 100k more than we draw .

so we will buy something expensive every few years , like in 2023 we bought a luxury car for 80k , last year it was 40k for all new cameras and lenses .

so it’s a great feeling to be ahead of the curve .


so 95/5 kind of gives us each years goal posts but typically we don’t come close .

we also found it’s easiest to set a side the years money and then channel all dividends ,interest and distributions in to next years money .

it’s much easier paying bills we find when you are not doing it hand to mouth .

certain months are much heavier than others so the flow coming in does not match what’s going out.

so we kind of buffer it by always filling up next years money , works well for us .

some may prefer to just let whatever comes in go for the current year.

the last two years were amazing for us as fidelity blue chip growth fund was one of my biggest positions and it doubled pretty much .

so we had a large capital loss carry over from our LLC closing we had to take so we sold all the old positions and took profits .

we really hunkered down since january and decided to almost sit the rest of this crazy year out after 600k in gains last year and not wanting to give much back .

so we have a very conservative position now . maybe 18% stocks both domestic and international. that’s a change since i always held only domestic as far back as i can remember, 18% gold , 18% fixed income and the rest just cash instruments.

i never held a cash position this high . its our largest position. but at this interest rate its fine .

this is our lowest equity levels ever since i started in 1987. but with one man manipulating things it’s not a game i want to play.

the take a way here is that if you get the portfolio value up high enough and you can keep expenses in range then draw rate becomes irrelevant after a while because with 95/5 you are rewarded unlike the conventional draw method. so it’s easy to stay ahead of the curve .

historically if you didn’t take raises with a conventional al 4% swr besides inflation 90% of the time wth 40-60% equities you died with more than you started .

that is a lot to not have enjoyed .

95/5. lets you automatically enjoy that money so your curve looks different if you don’t increase spending to much