Instructions for Withdrawing from TIPS Ladder (Sheet1)
Start with $1,000,000 (the end balance prior to start of Year 1)
Have 10 steps in the ladder
All steps will have $100,000
Step -1 matures right before the start of Year 1, Step 1 matures at the end of Year 1, Step 2 matures at the end of Year 2, etc.
Assume a TIPS Real Rate of 1.3%
At the end of Year -1, an interest payment of $13,000 is received ($1,000,000 * 1.3%)
Step -1 of $100,000 matures in at the end of Year -1 (the start of Year 1)
Cash now available is $113,000 ($13,000 + $100,000)
Assume Initial Withdrawal Rate of 4%
Withdrawal at end of Year -1 will be $40,000 ($1,000,000 * 4%)
Remainder of $73,000 ($113,000 - $40,000) will be used to purchase a 10-year TIPS for Step 10
This completes Year -1 (the start of Year 1)
Assume an Inflation Rate of 3%
At the end of Year 1, inflate Steps 1 through 10 by 3%. For example, Step 1 rises from $100,000 to $103,000.
At the end of Year 1, the value of portfolio ladder is $1,002,190
At the end of Year 1, an interest payment of $13,028 is received ($1,002,190 * 1.3%)
Step 1 of $103,000 matures in at the end of Year 1
Cash now available is $116,028 ($13,028 + $103,000)
Withdrawal at end of Year 1 will be $41,200 ($40,000 * 1.03%)
Remainder of $74,828 ($116,028 - $41,200) will be used to purchase a 10-year TIPS for Step 11
This completes Year 1
At the end of Year 2, inflate Steps 2 through 11 by 3%. For example, Step 2 rises from $103,000 to $106,090.
At the end of Year 2, the value of portfolio ladder is $1,003,239
At the end of Year 2, an interest payment of $13,042 is received ($1,003,239 * 1.3%)
Step 2 of $106,090 matures in at the end of Year 2
Cash now available is $119,132 ($13,042 + $106,090)
Withdrawal at end of Year 2 will be $42,436 ($41,200 * 1.03)
Remainder of $76,696 ($119,132 - $42,436) will be used to purchase a 10-year TIPS for Step 12
This completes Year 2
At the end of Year 3, inflate Steps 3 through 12 by 3%. For example, Step 3 rises from $106,090 to $109,273.
At the end of Year 3, the value of portfolio ladder is $1,003,060
At the end of Year 3, an interest payment of $13,040 is received ($1,003,060 * 1.3%)
Step 3 of $109,273 matures in at the end of Year 3
Cash now available is $122,312 ($13,040 + $109273)
Withdrawal at end of Year 3 will be $43,709 ($42,436 * 1.03)
Remainder of $78,603 ($122,312 - $43,709) will be used to purchase a 10-year TIPS for Step 13
This completes Year 3
Repeat procedure for Years 4 through 18
At the end of Year 19, inflate Steps 19 through 29 by 3%. For example, Step 19 rises from $118,611 to $122,170.
At the end of Year 19, the value of portfolio ladder is $740,538
At the end of Year 19, an interest payment of $9,627 is received ($740,538 * 1.3%)
Step 19 of $122,170 matures in at the end of Year 19
Cash now available is $131,797 ($9,627 + $122,170)
Withdrawal at end of Year 19 will be $70,140 ($68,097 * 1.03)
Remainder of $61,656 ($131,797 - $70,140) will be used to purchase a 10-year TIPS for Step 29
This completes Year 19
At the end of Year 20, inflate Steps 20 through 29 by 3%. For example, Step 20 rises from $74,134 to $76,358.
At the end of Year 20, the value of portfolio ladder is $700,425
At the end of Year 20, an interest payment of $9,106 is received ($700,425 * 1.3%)
Step 20 of $76,358 matures at the end of Year 20
Cash now available is $85,463 ($9,106 + $76,358)
Withdrawal at end of Year 20 will be $72,244 ($70,140 * 1.04)
Remainder of $13,219 ($85,463 - $72,244) will be used to purchase a 5-year TIPS for Step 25
This completes Year 20
At the end of Year 21, inflate Steps 21 through 29 by 3%. For example, Step 21 rises from $75,002 to $77,252.
At the end of Year 21, the value of portfolio ladder is $656,405
At the end of Year 21, an interest payment of $8,533 is received ($656,405 * 1.3%)
Step 21 of $77,252 matures at the end of Year 21
Cash now available is $85,786 ($8,533 + $77,252)
Withdrawal at end of Year 21 will be $74,412 ($72,244 * 1.03)
Remainder of $11,374 ($85,786 - $74,412) will be used to purchase a 5-year TIPS for Step 26
This completes Year 21
At the end of Year 22, inflate Steps 22 through 29 by 3%. For example, Step 22 rises from $75,838 to $78,113.
At the end of Year 22, the value of portfolio ladder is $608,242
At the end of Year 22, an interest payment of $7,907 is received ($608,242 * 1.3%)
Step 22 of $78,113 matures at the end of Year 22
Cash now available is $86,021 ($7,907 + $78,113)
Withdrawal at end of Year 22 will be $76,644 ($74,412 * 1.03)
Remainder of $9,376 ($86,021 - $76,644) will be used to purchase a 5-year TIPS for Step 27
This completes Year 22
At the end of Year 23, inflate Steps 23 through 29 by 3%. For example, Step 23 rises from $76,638 to $78,937.
At the end of Year 23, the value of portfolio ladder is $555,690
At the end of Year 23, an interest payment of $7,224 is received ($555,690 * 1.3%)
Step 23 of $78,937 matures at the end of Year 23
Cash now available is $86,161 ($7,224 + $78,937)
Withdrawal at end of Year 23 will be $78,943 ($76,644 * 1.03)
Remainder of $7,218 ($86,161 - $78,943) will be used to purchase a 5-year TIPS for Step 28
This completes Year 23
At the end of Year 24, inflate Steps 24 through 29 by 3%. For example, Step 24 rises from $77,398 to $79,720.
At the end of Year 24, the value of portfolio ladder is $498,490
At the end of Year 24, an interest payment of $6,480 is received ($498,490 * 1.3%)
Step 24 of $79,720 matures at the end of Year 24
Cash now available is $86,200 ($6,480 + $79,720)
Withdrawal at end of Year 24 will be $81,312 ($78,943 * 1.03)
Remainder of $4,888 ($86,200 - $81,312) will be used to purchase a 5-year TIPS for Step 29
This completes Year 24
At the end of Year 25, inflate Steps 25 through 29 by 3%. For example, part of Step 25 rises from $78,113 to $80,457.
At the end of Year 25, the value of portfolio ladder is $436,368
At the end of Year 25, an interest payment of $5,673 is received ($436,368 * 1.3%)
Step 25 of $80,457 (10-year TIPS) & $15,324 (5-year TIPS) matures at the end of Year 25
Cash now available is $101,454 ($5,673 + $80,457 + $15,324)
Withdrawal at end of Year 25 will be $83,751 ($81,312 * 1.03)
Remainder of $17,703 ($101,454 - $83,751) will be left in cash
This completes Year 25
At the end of Year 26, inflate Steps 26 through 29 by 3%. For example, part of Step 26 rises from $78,781 to $81,144.
At the end of Year 26, the value of portfolio ladder is $350,805
At the end of Year 26, an interest payment of $4,560 is received ($350,805 * 1.3%)
Step 26 of $81,144 (10-year TIPS) & $13,185 (5-year TIPS) matures at the end of Year 26
Value of cash left from Step 25 is $18,234 ($17,703 * 1.03)
Cash now available is $117,124 ($4,560 + $81,144 + $13,185 + $18,234)
Withdrawal at end of Year 26 will be $86,264 ($83,751 * 1.03)
Remainder of $30,860 ($117,124 - $86,264) will be left in cash
This completes Year 26
At the end of Year 27, inflate Steps 27 through 29 by 3%. For example, part of Step 27 rises from $79,395 to $81,777.
At the end of Year 27, the value of portfolio ladder is $264,170
At the end of Year 27, an interest payment of $3,434 is received ($264,170 * 1.3%)
Step 27 of $81,777 (10-year TIPS) & $10,870 (5-year TIPS) matures at the end of Year 27
Value of cash left from Step 26 is $31,786 ($30,860 * 1.03)
Cash now available is $127,867 ($3,434 + $81,7773 + $10,870 + $31,786)
Withdrawal at end of Year 27 will be $88,852 ($86,264 * 1.03)
Remainder of $39,016 ($127,867 - $88,852) will be left in cash
This completes Year 27
At the end of Year 28, inflate Steps 28 and 29 by 3%. For example, part of Step 28 rises from $79,953 to $82,351.
At the end of Year 28, the value of portfolio ladder is $176,668
At the end of Year 28, an interest payment of $2,297 is received ($176,668 * 1.3%)
Step 28 of $82,351 (10-year TIPS) & $8,367 (5-year TIPS) matures at the end of Year 28
Value of cash left from Step 27 is $40,186 ($39,016 * 1.03)
Cash now available is $133,202 ($2,297 + $82,351 + $8,367 + $40,186)
Withdrawal at end of Year 28 will be $91,517 ($88,852 * 1.03)
Remainder of $41,684 ($133,202 - $91,517) will be left in cash
This completes Year 28
At the end of Year 29, inflate Step 29 by 3%. For example, part of Step 29 rises from $80,448 to $82,861.
At the end of Year 29, the value of portfolio ladder is $88,528
At the end of Year 29, an interest payment of $1,151 is received ($88,528 * 1.3%)
Step 29 of $82,861 (10-year TIPS) & $5,667 (5-year TIPS) matures at the end of Year 29
Value of cash left from Step 28 is $42,935 ($41,684 * 1.03)
Cash now available is $132,614 ($1,151 + $82,861 + $5,667 + $42,935)
Withdrawal at end of Year 29 will be $94,263 ($91,517 * 1.03)
Remainder of $38,351 ($132,614 - $94,263) will be left in cash
This completes Year 29