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I've seen things like this suggested before. As the writer points out, there are two concerns.
The first is volatility, which he addresses by purchasing a ladder at time t0 that mature in 1 year, 2 years, 3 years, and so on.
The second concern is that one needs to buy bonds with a positive real rate of return. Right now, at least, that seems to be possible. If bonds had only a zero real return then you'd exhaust them after 25 years (4% inflation adjusted x 25 years = 100%).
Likely one would want to do this with only part of one's portfolio, for two related reasons. One is that there's no upside potential. The thing about a safe withdrawal rate is that it is usually a floor, meaning that in most scenarios one comes out better. Not here. The other is that there's always the possibility of living longer than 30 years. (Well, not always; one might be starting at age 80.)
The other issue which he addresses is the price inefficiencies required to build a ladder for less than $500,000
I can't imagine someone with only $100,000 in total retirement savings ( unfortunately there are a lot of Americans in this boat) would find this useful.
Here he is buying two or three bills in some of the rungs. I don't see why you couldn't do every five years for example.
Comments
The first is volatility, which he addresses by purchasing a ladder at time t0 that mature in 1 year, 2 years, 3 years, and so on.
The second concern is that one needs to buy bonds with a positive real rate of return. Right now, at least, that seems to be possible. If bonds had only a zero real return then you'd exhaust them after 25 years (4% inflation adjusted x 25 years = 100%).
Likely one would want to do this with only part of one's portfolio, for two related reasons. One is that there's no upside potential. The thing about a safe withdrawal rate is that it is usually a floor, meaning that in most scenarios one comes out better. Not here. The other is that there's always the possibility of living longer than 30 years. (Well, not always; one might be starting at age 80.)
It would be interesting to compare results with an inflation adjusted annuity. That would address the risk of living "too long". The problem here is that this is a product that may no longer exist.
https://obliviousinvestor.com/inflation-adjusted-annuities-no-longer-available-now-what/
(This column points out the same longevity risk with TIPS and of course inflation risk with nominal annuities.)
I can't imagine someone with only $100,000 in total retirement savings ( unfortunately there are a lot of Americans in this boat) would find this useful.
Here he is buying two or three bills in some of the rungs. I don't see why you couldn't do every five years for example.