Last week I wrote about an inflation protected income can be generated by dividing a corpus into 4/5 portions and investing each into financial instruments of varying risk and tenure, while setting up an income ladder for the first few years. As the investment in each bucket matures a new income ladder will be set up with it.
If you have not read that post, I strongly suggest you read it first and then get back to this one: Generating an inflation-protected income with a lump sum
I was surprised by the popularity of that post and received many requests to post a calculator with which different possibilities based on this strategy can be simulated. This post describes such an inflation-protected income simulator.
The calculator has two sheets:
- Single Bucket Income Ladder This helps to understand what an income ladder is.
The idea is to invest in fixed-income instruments of varying maturity. The maturity value of each investment corresponds to the income needed that year taking an assuming rate of inflation into account. For more details see here
This is an offshoot of my popular income ladder calculator This describes two ways of creating the ladder: cumulatively or with payouts.
Last weeks post and the present calculator assumes investments are cumulative.
- 0+6 Buckets income ladder
This sheet allows you to determine the total corpus required to generate an inflation-protected income for desired period ( a maximum of 210 years!!).
This period can divided into a maximum of 7 buckets of varying risk (as determined by the return).
When the buckets mature, an income ladder of some assumed return is set up to generate income.
The calculator is flexible, and the buckets can be constructed with different tenures and different returns.
Note: Please use appropriate post-tax returns everywhere.
This is a deterministic simulator. That is the returns are assumed to be fixed. If you use higher returns, they are likely to be associated with a non-zero standard deviation and therefore, volatility. This will have a huge impact on the final results.
If you are interested in trying out buckets with volatility, try out this popular and addictive: Retirement ‘Bucket Strategy’ Simulator