No. of Recommendations: 3
Wife and I are 84 years old.
Pension and soc sec cover expenses
What type of Tips would you buy
one Year or couple years, or ladder or ETF?
If your nest egg is big enough that having a good positive real return is not they key determinant, there is much to be said for a ladder. No work. Other than currency devaluation, essentially no risk. Just spend any coupons plus the money from whatever bonds are maturing this year. Buy the TIPS, not a TIPS fund.
However a side note:
I am a big fan of funding one's retirement in two parts to deal with longevity risk: the risk of outliving your money. Too many people handle that risk by spending far less than they probably could, to their detriment.
The two part goes like this:
(a) Pick a ripe old age, say 90, perhaps somewhere around or just after your actuarial life expectancy. Buy some deferred annuities that kick in then. These will be pretty cheap for a given amount of income, since the starting age is so high. Depending on your ages and so forth this might use up, say, 10-20% of one's portfolio.
(b) Spend the rest of your money in a roughly straight line between now and then. Just as your main block of money runs out, that big fat annuity kicks in. You don't have to worry about outliving your money, so you don't have the problem of never getting to enjoy it. This part could be in TIPS. For younger people equities also make sense, since there is enough time that the real rate of return matters.
It's not all that hard to estimate the ratio of money to put into each part in order to get roughly level permanent real income for life, since you can see the annuity pricing in advance. The hard part is that inflation-adjusted annuities at a fair price are pretty much non-existent, so you kind of have to a different amount of non-inflation-adjusted ones. (the ones with a little bit of inflation protection tend to be the worst of both worlds: you're not fully protected, and they charge more than the finite extra benefit they provide). Either just buy more than you need so the inflation merely brings you back down to the target, or buy mostly ones that kick in at (say) 90 and a smaller annuity that kicks in at (say) 94 just as inflation is starting to hit the real income from the first set.
It's not a bad idea to buy annuities from multiple credit worthy sources, not backed by private equity firms.
Jim
