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URL:  https://boards.fool.com/ltltdoes-any-of-this-take-into-account-the-18987858.aspx

Subject:  Re: The hocus plan: 4% from 100% FI? Date:  5/1/2003  2:53 PM
Author:  markr33 Number:  104973 of 881685

<<Does any of this take into account the level of interest rates? If not, then I'd be hestant to draw any conclusions whatsoever. >>

To borrow a page from the REHP dogma crowd, interest rates are included in the analysis to the extent that they have varied through the 130 years of stock market data covered in intercst's spreadsheet. And they are reflected in the inflation adjustment made each year to the withdrawal amount.


Actually, this is a good question and a very interesting comment. Especially interesting today since the I-bond rates for the next 6 months (for 30 year bonds) were just set this morning. I went to the government bond site this morning looking for the latest rates and noticed that they have lowered the fixed rate to 1.1%. Then I promptly came here to post it, but noticed that someone beat me to it.

Anyway, the I-bonds interest rate is a combination of a fixed and variable component, based on CPI (inflation). Now interestingly enough, the "fixed" rate seems to have varied even more than the "variable" part has. I know that the fixed rate of a previously purchased I-bond never changes, but for the purposes of analysis, this has to be somehow taken into consideration unless you assume that a person only purchased I-bonds once during the 50 year withdrawal period (which I think is impossible since they only last for 30 years). Actually, if I recall correctly, the fixed portion has varied between 1.1% and 3.6%, currently at the low point.

How has the variation in I-bond rates (fixed rate only since the variable rate tracks inflation anyway) been accounted for in a study of SWR for a potfolio including I-bonds ?

Since there isn't much history of I-bond fixed rates, I suppose the only way to do it would be to have some sort of limited monte carlo approach in which a bunch of random changes (perhaps using historical min and max numbers to bound the changes) in that rate could be taken into account.

I suppose this problem also affects TIPS similarly.

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