When we discuss liability matching portfolios (LMPs) we are often referring to tips ladders or defined maturity ETFs, in which inflation protected bonds mature each year, sufficient to address spending needs.
I, in fact, have such a portfolio.
However it is heavily front loaded in the first 5 years, because those tips were bought when real yields were zero or slightly below, and there was no desire to lock in a negative real yields for any length of time. Since then, the rest of the ladder has been built out through 2044. (Not going into TIPS gap year stuff here)
So let's say you or your spouse get a terminal illness, early on in the ladder, that typically runs a course of 6 to 8 years with very high health care costs. Thus, your spending profile is going to be heavily front loaded.
I think that what this means, is that some of the TIPS intended for later years will have to be redeemed earlier.
So even an LMP portfolio has interest risks, if this unfortunate event occurs. Unless someone can give me some better ideas for flexibility that I haven't thought of.
P.S. There is also a life insurance policy, which is the only hedge I can think of. Also, the well spouse would start Social security ASAP if he/she was 62.
I, in fact, have such a portfolio.
However it is heavily front loaded in the first 5 years, because those tips were bought when real yields were zero or slightly below, and there was no desire to lock in a negative real yields for any length of time. Since then, the rest of the ladder has been built out through 2044. (Not going into TIPS gap year stuff here)
So let's say you or your spouse get a terminal illness, early on in the ladder, that typically runs a course of 6 to 8 years with very high health care costs. Thus, your spending profile is going to be heavily front loaded.
I think that what this means, is that some of the TIPS intended for later years will have to be redeemed earlier.
So even an LMP portfolio has interest risks, if this unfortunate event occurs. Unless someone can give me some better ideas for flexibility that I haven't thought of.
P.S. There is also a life insurance policy, which is the only hedge I can think of. Also, the well spouse would start Social security ASAP if he/she was 62.
Statistics: Posted by Hebell — Sun Jul 28, 2024 8:17 pm — Replies 9 — Views 596