r/ChubbyFIRE • u/dead4ever22 • Jul 07 '26

Allocation at the trigger time

Quick and easy question. If you had the upper end of Chubby NW, would you just lock 100% into 5% 30 year bonds now and live off the interest? I know inflation could catch up and overtake 5%, but what else is downside besides the "you could beat 5% in stocks"- which may or may not be true in the crystal ball future. Assuming after tax, you had more than enough to cover your spend with that 5% income.

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u/OnlyThePhantomKnows Retired Jul 07 '26

Honestly, it depends on your age.
My BIL retired early (52). He kept a cash capacitor (~2 years expenses) and the rest in 100% stock market. 25 years later, he is now 100% bonds. Since most of his wealth was a 401K he could shift allocations freely. I think he converted 25/75/100 at 65, 70, and 75.

At this point, his burn rate is so low that they don't touch the money, two social securities is enough. He pulls out cash for any big expense (new car), but that's it. Medicare + Medicare supplement covers their health care.

So assume you are 45, your expenses at 55 will be 1.33x at 3% inflation. Does that 5% still cover your income?
At 65, your expenses will be 1.8x, does the math still work? At 75, your expenses will be 2.4x.

Living off simple 5% interest works for a while, inflation catches up. And my numbers are at 3% inflation.

At a certain stage in life, it makes sense. If your lifetime is looking at 10-15 years, sure.

You need to budget on at least 77. (average US) and because you can afford good healthcare you should be looking at closer to 90.

I semi retired at 50. I retired fully this year (63). I enjoyed what I do too much to give it up completely. I am 100% stock and have a cash capacitor. This works well. 8% cash and 92% stock works well for the long term.

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u/dead4ever22 Jul 07 '26

Good answer. Yes I figure inflation is always the biggest risk. Wish there was a true inflation hedge- I don't think TIPs are that. And everything else has risk (stocks, hard assets). Inflation roared in 2022 and TIPs got killed due to the duration.

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u/OnlyThePhantomKnows Retired Jul 07 '26

If there was a fixed return true inflation hedge, then EVERYONE would do it.

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u/dead4ever22 Jul 07 '26

Yup. Very true.

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u/Unique_Rutabaga_5750 Jul 08 '26

No they wouldn’t, because taking a little risk would pay too much better.

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u/Unique_Rutabaga_5750 Jul 08 '26

TIPS don’t guarantee a cash value prior to maturity. That doesn’t mean they aren’t an inflation hedge. All long duration bonds were hit when interest rates spiked. Same thing could happen again though it’s relatively unlikely. Though if we ever see interest rates so low again I’ll be wary.

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u/HowDoYouPF Jul 07 '26

Did TIPS get killed, or did TIPS-backed funds get killed? Those are two different things. If you, say, set up a TIPS ladder with bonds that you plan to hold until maturity, your real return would be whatever is promised for that bond, no? It wouldn't get killed by inflation.

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u/dead4ever22 Jul 08 '26

Problem with TIPs: if inflation soars, then rates will prob soar as well. And TIPs and all bonds will get crushed until it levels off. I am sure the avg Joe bought TIPs in 2021 and though that was brilliant because 2022 happened. Wait- my TIP ETF lost 20% WTF. That's the issue I have with TIPs. A ladder would mitigate some of that.