Personal Investments • Re: Heavily investing in TIPS?

Hi. My wife and I are both 56. I am self-employed and she is a teacher with a pension. She will be retiring in 6.5 years and for the sake of retirement planning, I’m assuming I will, too. Here’s our expected financial situation at the time of retirement (2031):

Emergency funds: 1 year of expenses.

Debt: None.

Tax Filing Status: Married Filing Jointly.

Tax Rate: Estimated at 15% Federal, 4% State.

State of Residence: California.

We have the following retirement accounts:

57% His SEP IRA (Vanguard)
20% Her 403b IRA (Vanguard)
17.5% Her 457 IRA (CalPERS)
2.5% Her Roth (Oakmark)
2.5% His Roth (Schwab)
0.5% Her IRA (Oakmark)

For the next 6.5 years we will continue to contribute to the 403b and 457 accounts (about an additional 2% of the total in all) but none of the other accounts.

At the time of retirement, for ages 63-70, the teacher pension will cover roughly 45% of RLE (residual living expenses). From age 70 on, with the addition of social security and another small pension, 73% of RLE will be covered. The remainder of the RLE will come from the retirement account, with an average burn rate of about 3.2%.

Currently, we hold about 72% stocks, a small amount in REITs, and the rest in various bonds. Since we seem to have enough in retirement to cover all expenses into very old age (we’ve been budgeting monthly for years and I’m pretty confident our estimated expenses are accurate), I’m entertaining the idea of now being very conservative with the funds. Based on William Bernstein’s writing, I like the idea of creating a TIPS ladder to cover our RLE for as long as possible. If I use 100% of the money that is in the SEP IRA, 403b, and Oakmark IRA accounts, that will get us about 17 years RLE starting 2031 (to age 80). It would be 54% of the total amount of retirement funds at the start of retirement (figuring in our expected contributions over the next 6.5 years and a conservative 3% increase in value). If I deplete the Roth funds as well, that would get us about 19 years RLE (to age 82) and constitute 57.5% of the total amount of retirement funds. The remaining retirement funds I would likely place in a Total Stock Market index fund just to make my life as simple as possible. I would then keep adding to the TIPS ladder each year, at least for a few more years. At age 85 or so, I assume if the stocks did well, we could live on that, or we could always sell our home and downsize.

I’m mainly looking for a very safe strategy that allows me to mostly ignore investment decisions in the future.

Questions:
1.This approach is likely too conservative for many people, but with that caveat is there anything glaringly wrong with it?
2.Assuming this is a reasonable strategy, is it a bad idea to use Roth funds for TIPS? I would think it’s better to use those accounts for higher return equities. The reason I would think of using the Roths is that the CalPERS account is more difficult to manage than the others and I’m not sure I can even buy TIPS through it.
3.Is it better to build a ladder all at once (i.e now) or more slowly?
4.Is now even a good time to build a ladder? It seems so to me, but I could easily be wrong.
5.By far, the easiest way for me to build the ladder would be to use tipsladder.com and purchase all TIPS on the secondary market. Any major problem with that? For example, is it worth the extra effort of buying 5, 10, and 30 year TIPS at auction through Vanguard and buying just the remaining years on the secondary market (also through Vanguard)?
6.Any other considerations I might be missing?

Thanks for any advice!

Statistics: Posted by rossington — Sun Jun 09, 2024 5:40 am