I think @TipsQuestions may be talking about TIPS in a more general portfolio like the risk portfolio. In that case, the ability of the portfolio to support standard of living increases is a function of the overall net real performance after withdrawals compared to the rate of improvement in the general economy.The 2% real return of TIPS won't translate to increasing payouts over time unless you structure the payouts to increase over time. The typical flat bond ladder would have fewer TIPS funding later years to offset the 2% yield and get a constant payout. To make payouts a constant $X per year, the payout t years from now would get $X/(1+.02)^t worth of TIPS today. So the 2% return reduces the cost of the TIPS needed for the target payout, but doesn't increase the target payout.My TIPS portfolio will give me access to standard of living improvements from the items mentioned above (especially with that 2% real return). I don't expect any steady decline in my standard of living vs the general population, however you might define that.
TIPS instead of nominal bonds in a classic fixed AA offer the potential for returns with a lower downside deviation. TIPS purchased about a year ago also offered real returns greater than the rates achieved historically by nominal bonds. Whether or not that level of performance occurs again remains to be seen.
In any case, we're getting way off-topic here. The typical TPAW user should probably focus more on what they hope to achieve in order to align their plans with those objectives. Having done that, the user should periodically revisit the plan, revising as necessary to adjust for actual performance. Growth or no-growth in standard of living is only one of the potential factors to consider.
Statistics: Posted by GAAP — Wed Sep 04, 2024 9:13 am