Community reviews of retirement plans

@boston-spam-02101gmail-com Kevin: Good suggestion. I support your proposal to hold community reviews and look forward to participating. Steve

@boston-spam-02101gmail-com Kevin - You had me at Retirement Planning! Maybe you could give a little insight as to what you are looking for in this discussion, as retirement planning is a huge subject. General philosophy, asset allocation, when to start social security, indexing, sequence of return risks, risk tolerance, etc., or all of the above. I would love to jump in.

Hi @Pizzaman

I was thinking of a Pralana user sharing their retirement plan and the community asking questions, pressure testing, and giving feedback about how it might be improved.

Over in the Projection Lab community they've hosted 7-8 of these "Case Studies" Zoom calls, and it seems that's been relatively popular exercises.

I thought I might try something different by putting my response in as a story. My general retirement planning philosophy is that I pretend that I am a dollar bill.

As a dollar bill, am I a smart entity? Hardly. Don’t need to be. I don’t care where I came from. The only question I ask is what are you going to spend me on, and when. O, and I like to be around other dollar bills, a lot of them, I am a social creature after all. That’s it.

In terms of you and your friends, I need to know that you will last rest of my and my wife’s life. So, I agree, I need you and your friends, a lot of them. I saved a bunch of you during my working years and now that I am retired, how do I not run out. Unless inflation goes to zero and stays that way for the next 35-40 years, I need to invest them (you).

As a dollar bill I am not capable of knowing where or how I came to be, or how to get more friends, just that I want more dollar friends. Where and how do I get more friends?

This is where history and reality come into play. Setting risk aside for a moment, where should I invest to maintain my lifelong goal of having plenty of you around. Just look at the sea of investments out there and determine which ones do the best over time, 20 years plus should do it. From your perspective as a dollar bill, just look at the return on investment numbers, which of those investments did the best. Don’t care what the investment is called, where it’s from, or what experts think. Just how many friends does it generate to hang out with you, my friend the dollar.

So what’s the answer?

A total US market or S&P 500 index fund. Over time it has beaten every other investment on the planet, over time, bar none.

So are we done?

I wish it were that simple. Now we need to consider risk. I need an emergency fund, probably in an online savings account. Then I need to protect myself from sequency of return risk for the first 6-10 years of my retirement, maybe by using bonds, bond funds and/or US Treasuries. The rest in the US stock market for growth to beat inflation. Don’t forget long-term health costs, that’s a tuff one. Hopefully my stock fund generates enough for me to self-insure. That should do it. What do you think??

I might but not sure how we’d organize it.

@boston-spam-02101gmail-com Kevin

I am not surprised you have received little reaction to your request. For some reason Americans are very reluctant to discussion their personal finances. It is not taught in primary school (K-12) and very few parents broch the topic with their kids, it's a shame, how are we suppose to learn? So, I will dive into the deep end of the pool.

What I am going to present works for me (and wife) and only applies to us. Not at all suggesting it should be used by anybody else. Clear 😎?

Background - My wife and I have no kids and live in the Midwest, so living expenses are not crazy. We are both retired, about 6 years now. We were lucky in that both of our last employers offered Roth 401k plans which we fully funded. We have always been savers. I started getting real serious about retirement planning/investing as a result of the great recession of 2008/2009. Although I have, in the past, gone into the weeds on this forum (tiring to break that habit) I have not done so with our planning, we are big picture people.

After getting up to speed on retirement planning (reading books, articles, podcasts, websites, etc.) I decided in about 2012 that the worst of the recession (at least for the US stock market) was over and that, based on history, it would come back, hopefully in a big way. So I went to an asset allocation (AA) of 90% US stock index funds and 10% bonds and left it there 🤑.

The next big change in our retirement planning was in March 2020 during the low point in the stock market during the COVID-19 pandemic. Did I know that it was going to be the low point, no, but low enough. I did a multiple 6 figure Roth conversion, paid for from funds in my taxable account. That's when I learned about the 3.8% Net Investment Income Tax, after the fact, oops. Well, you learn by doing. Again, based on history I was confident the stock market would come back.

Next, in October 2023, US Treasury yields shot up. At this point in time we were retired and no longer need an AA of 90% stock. So I put together a Zero Coupon US Treasury ladder that goes from 2027 to 2037 in amounts that will pay for our normal living expenses, assuming a similar standard of living. Because the US stock market kept hitting record levels in 2025, I took the gains and extended the bond ladder into 2042.

I know what you're thinking, man you got very lucky! I prefer the word fortunate. Luck implies you did absolutely nothing and fate came a knocking. Well, I looked at the various situations realizing they do not come around very often and you need to be ready to take advantage when they do present themselves. Alright, I got a little bit lucky 😏.

So this is where our AA is now:

66% US stock index funds

3% Foreign stock index fund

22% Zero Coupon US Treasuries

9% cash (money market, CD's, etc)

For our stock index funds:

46% is in FZROX (Fidelity Zero total US stock market)

13% in FNILX (Fidelity Zero S&P 500 equivalent)

6% VTI (Vanguard total US stock market)

3% in AVDV (Avantis International Small Cap Value)

The Fidelity mutual funds have zero costs and zero expense ratios. All our money is with Fidelity with free checking. Since I manage our money, not Fidelity, I pay Fidelity nothing for anything. They just keep hoping I will hire them to manage our money. Maybe some day, but not today 😉.

Hi @Pizzaman,

Thank you for sharing your history and present asset allocations.

I have lots of questions, and a few ideas for your consideration:

1) Ages for you and your wife?

2) Burn-rate and Withdrawal strategy
- How do you think about how much to spend each year?
- What is your total essential spend per year,? How much is your total discretionary spend?

3) Asset locations
- Which assets are held in taxable accounts? Pre-tax? Tax Free (Roth v. HSA) ?

3) Bond-ladders

- Tax brackets: What income tax brackets are you in? If you're in a high federal tax bracket (>22%) then Municipal bonds often offer higher post-tax yield than treasuries.

- Inflation: The current market expectation is that inflation will average ~2.34% over the next 10-years. Do you believe that inflation will be lower than that? Higher than that? or is 2.34% about right? If inflation evolves over the next few years as the market currently expect, you'll get the same returns from US Treasuries Bonds as from TIPS. If inflation turns out higher than that then you'll be better off with TIPS. If inflation is lower than expected, then you'll be better off with US Treasury bonds. I prefer TIPS for my Bond Ladders because it provides better down-side protection against inflation risk. The cost is that you give up upside if inflation turns out to be unexpectedly low and you will definitely pay higher taxes if you hold them in a taxable account.

- Bond Ladder duration: A bond ladder is a hedge against bad market returns over the ladder period but you pay the price of missing out on higher market returns from equities if the market turns out to be average or better. A 15 year ladder provides plenty of down-side protection, but giving up on 15 years worth of higher returns from equity investments is a high cost to pay. In my prior simulations I've found that ~7 years worth of bond-ladder gave me the best trade-off between downside protection and minimizing the "cost' I'm giving if things turn out to be average or better. In most historical USA bear markets, a ~7 year bond ladder would outperform a ~15-year bond ladder because it doesn't take THAT long for the market to recover.

4) International Market equities:
- You might benefit from increased exposure to international markets, both for diversification and for total returns. The US market is richly valued today and may underperform in the next 5-10 years. International markets have outperformed in 2025. Perhaps consider VXUS or similar?

If you'd like, you could attach your Pralana Input Report and Results Report.
That would answer most of the questions and perhaps we could find some more questions and suggestions.

Happy optimizing!

1) Ages for you and your wife? 65 & 61

2) Burn-rate and Withdrawal strategy
- How do you think about how much to spend each year?
- What is your total essential spend per year,? How much is your total discretionary spend?

This will take a little splanning. Combining our two regular IRAs and two Roth IRAs together, about 62% is in the Roths. Since I am older then my wife, we are living off of my regular IRA, partially. Since we have so much in Roths, we were able to adjust our MAGI downward by withdrawing from my Roth, lowering our MAGI to get the enhanced ACA (Obama Care) incentives. Because our MAGI is so low, standard deductions (applied to withdraws from my reg IRA) results in us paying no federal or state income taxes. Because of this we also qualified for about $10,000 in state energy efficiency tax credits over the past two years (insulation, new furnace, new heat pump/central air).

We know exactly how much we spend each year as I keep track of it. How much, I am not ready to say in an open forum. Yea I know what I said in my last post 😶.

Because the US stock market did so well the past 15 years or so, our investments now generate more then we spend, so our spend rate in less than 3%, I think, don't really look at it. Not bragging, it's just the numbers 🤐.

3) Asset locations
- Which assets are held in taxable accounts? Pre-tax? Tax Free (Roth v. HSA) ?

My reg IRA has short term investments, CD's, short term treasuries, money market.

Wife's reg IRA has our US Treasury ladder plus FZROX.

The Roths have FZROX, FNILX, VTI, AVDV.

3) Bond-ladders

- Tax brackets: What income tax brackets are you in? See answer to question 2 (12%).

If you're in a high federal tax bracket (>22%) then Municipal bonds often offer higher post-tax yield than treasuries.

- Inflation: The current market expectation is that inflation will average ~2.34% over the next 10-years. Do you believe that inflation will be lower than that? Higher than that? or is 2.34% about right? If inflation evolves over the next few years as the market currently expect, you'll get the same returns from US Treasuries Bonds as from TIPS. If inflation turns out higher than that then you'll be better off with TIPS. If inflation is lower than expected, then you'll be better off with US Treasury bonds. I prefer TIPS for my Bond Ladders because it provides better down-side protection against inflation risk. The cost is that you give up upside if inflation turns out to be unexpectedly low and you will definitely pay higher taxes if you hold them in a taxable account.

The hardest and most dangerous thing you can do in retirement planning is make predictions. The longer the prediction, the more likely it won't even come close. So I use history. Inflation over the past 100 years or so is about 3.3%. I use that. For our bond ladder, the 2027 maturity rate is 3.47%. For each treasury after that yield increases each year with the 2040 treasury yield at 5.0%. All above the 100 year average inflation rate.

- Bond Ladder duration: A bond ladder is a hedge against bad market returns over the ladder period but you pay the price of missing out on higher market returns from equities if the market turns out to be average or better. A 15 year ladder provides plenty of down-side protection, but giving up on 15 years worth of higher returns from equity investments is a high cost to pay. In my prior simulations I've found that ~7 years worth of bond-ladder gave me the best trade-off between downside protection and minimizing the "cost' I'm giving if things turn out to be average or better. In most historical USA bear markets, a ~7 year bond ladder would outperform a ~15-year bond ladder because it doesn't take THAT long for the market to recover.

I use zero coupon US Treasuries for four reasons; 1) eliminated sequence of return risk for us, 2) it is easier to make a ladder with them then TIPS, 3) over long periods of time (> 10 years or so) they perform better, and 4) since zero coupon bonds pay all their interest only when it matures, I know exactly how much money I will get each year of the bond ladder. Easier to do taxes in the future.

4) International Market equities:
- You might benefit from increased exposure to international markets, both for diversification and for total returns. The US market is richly valued today and may underperform in the next 5-10 years. International markets have outperformed in 2025. Perhaps consider VXUS or similar?

There is an entire thread on the forum that discusses US vs Global stocks that started in August 2022 with over 14,000 views. (Information Sharing>Sharing of Inflation...>US vs Global Stocks). Look at my post dated May 20, 2025 8:05 PM for my stance.

@boston-spam-02101gmail-com Kevin

What do you thing??

OK, now's it's your turn, what is your retirement plan??

Hi @pizzaman,

Thank you for the thoughtful answers to my questions about your retirement plan.
My feedback is below...

1) 3% Spend Rate

Given what info I have on your retirement, I don't know what your expected overall portfolio return is, so I'm not 100% sure whether your spend rate is too low or too high. But, given that it's <3% I suspect that there is a >>50% that you and your wife will die with a material legacy. If that is intentional, then great. If not, then you're likely UNDERSPENDING and you'd enjoy greater utility from your wealth if you found ways to spend more while you're living that make you and your wife happier.

2) Bond Ladder duration

I remain concerned that you may have a longer bond ladder than you need. A bond ladder is "insurance" against bear markets, and the more insurance you buy the more it will cost you. Because US markets have historically recovered, there seems to be diminishing returns to buying exceptionally long bond ladders.
To determine what the optimal ladder duration would be for you, I'd like to see a Pralana analysis comparing you plan outcomes using 5, 10, 15, and 20 year bond ladders. Specifically I'd want to see what the Chance of Success for each is under an Actuarial spending strategy with fixed minimum essential spending, and what the affordable annual Total Expense is under a Consumption Smoothing spending strategy. The difference in the Chance of Success under the Actuarial spending strategy is how much insurance you're getting, and the difference in the Total Expense under the Consumption Smoothing spending strategy is the price you're paying for that insurance (how much average spending you're sacrificing)
You may find that the incremental insurance benefit that you're getting for the late years in the bond-ladder isn't worth the price you're paying.

3) TIPS v T-Bonds in your bond ladder

I think you'd do better with TIPS than T-Bonds

Building your bond ladder using T-BONDS gives you insurance against an extended bear market, which is great, but for a lower price a TIPS bond ladder could offer the same insurance against an extended bear market and ALSO give you insurance against high inflation.

Furthermore, because TIPS and T-Bonds today are priced based on the assumption that inflation CAGR% will be 2.25-2.35%, I see very little up-side opportunity to using T-Bonds rather than TIPS. T-Bonds outperform TIPS only if inflation turns out to be LOWER than expected, and even if average inflation over the next 10 year is unexpectedly low at only ~2.0%, that's not enough lower that you'll experience a difference in your lived experience from holding T-Bonds. In contrast, if inflation over the next 10 years turns out to be the historical average level that you mentioned (3.3%), then you might have a noticeably better outcome with TIPS because TIPS will pay materially more.
And most importantly, the TIPS will perform MUCH, MUCH better than T-Bonds if we have an extended high-inflation period (5%+) during the bond ladder coverage period because the TIPS will then pay out a much higher yield.

4) US-only v. International Diversification

It's hard for me to argue against Warren Buffet and decades of returns where the USA has outperformed international markets....
But I'll still try...

The correlation of returns between US and International developed markets is ~90%, and nearly every serious study I've seen of the PROs and CONs of international diversification have concluded that there is a net-positive risk-adjusted benefit to holding both US and non-US stocks due to the benefits of this even modest diversification. The US-only portfolio may yield higher overall returns, but at the cost of higher volatility. The consensus conclusion and conventional wisdom within the vast majority the investing communities that I respect all include international exposure for this reason: Academia, Bogleheads, FIRE community, the Rational Reminder community, and wealth management firms.

Given that the US market valuations are exceptionally high relative to historical averages whereas the international markets are not, and that such elevated valuations have most often historically been followed by periods of underperformance, I don't feel confident enough in US market performance over the next few years that I would bet against the conventional wisdom that international diversification is prudent.

I'll package up my retirement plan and share soon.

Very warmly,
Kevin

Posted by: @boston-spam-02101gmail-com

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2) Bond Ladder duration

I remain concerned that you may have a longer bond ladder than you need. A bond ladder is "insurance" against bear markets, and the more insurance you buy the more it will cost you. Because markets do recover, there is diminishing returns to longer and longer bond ladders.
I'd like to see a Pralana analysis comparing plan outcomes with 5, 10, 15, and 20 year bond ladders. Specifically I'd want to see what the Chance of Success for each is, and what the annual expense is under a Consumption Smoothing spending strategy. The difference in the Chance of Success is how much insurance you're getting, and the difference in the Consumption Smoothing spending is the price you're paying for that insurance.
You may find that the incremental insurance benefit that you're getting isn't worth the price you're paying.

Have you seen the ARVA article by Stefan Sharkansky? I use a TIPs ladder for my essentials (where the "cost of the insurance" is worth it), but the author takes this idea even further, making an extensive argument that ideally all of one's bond allocation should be a TIPs ladder! Alas starting yesterday the article is no longer available for download but here is a summary, https://alphaarchitect.com/tips-ladder/

Posted by: @jkandell

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Have you seen the ARVA article by Stefan Sharkansky? I use a TIPs ladder for my essentials (where the "cost of the insurance" is worth it), but the author takes this idea even further, making an extensive argument that ideally all of one's bond allocation should be a TIPs ladder! The article is no longer available for download but here is a summary, https://alphaarchitect.com/tips-ladder/

Thank you @Jkandell

I had not read this article, thank you for sharing.
The ARVA recommendations in this article is nearly perfectly aligned with my own approach that I have pieced together from various sources. The biggest deviation in my approach is that I don't find a TIPS-ladder covering the full retirement period to be optimal. It's just too expensive given the modest extra protection that it offers. Instead I prefer a dynamically rolling bond ladder of finite duration that is sufficient to carry the retiree through the majority of potential market extended bear markets.

The key foundational observation of that article is that actuarially-variable spending from a 100% equity portfolio will deliver the highest average lifetime spending, but at the cost of high(er) volatility and down-side risk.

The key planning question then becomes
1) What de-risking mechanism offers the best insurance against down-side risk?, and
2) How much insurance against down-side risk do I want to buy, given how much I'll need to pay for it?

I believe that a dynamicaly-rolling 5-12 year TIPS bond-ladder offers the most cost-effective risk reduction in early retirement, and inflation-adjusted annuities offer the best risk reduction in late retirement (if you can buy inflation-adjusted annuities)

Most relevant to this thread on bond-ladders is in my own analysis of retirement outcomes across several bond ladder dimensions from which I concluded that a 6-7 year TIPS ladder approximately covering my essential expenses is optimal for me.

Here is a quick summary of the analysis I ran:

Retirement duration: ~50 years
Retirement draw-down strategy: Actuarial spending strategy with zero legacy
Retirement expense profile: ~50% Essential, ~50% discretionary (relative to Y1 spending allowed under Consumption Smoothing or Actuarial spending strategies)

Simulations I ran:
1) Traditional Monte Carlo simulations
2) Historical analysis

Outcomes I evaluated:
1) Chance of Success
1) 50th-Percentile (Median) Lifetime spending + Legacy
2) 20th-Percentile Lifetime spending + Legacy

Bond-ladder variables I adjusted:
1) Annual payout as % of Actuarially affordable spending in Year 1: 0%-100% in 10% steps
2) Ladder duration: 0-12 years
3) Bond type: T-Bonds, TIPS, Muncipal bonds

In the end I concluded that the best bond ladder for me was: A 7-YEAR TIPS LADDER covering my "essential" spending

I also tried modeling non-rolling v. rolling ladder variants, but the Monte Carlo simulation engines that I have access to don't model those dynamic "what if" scenarios well. Projection Lab was able to model dynamic rolling "a bit" using their milestones feature and those results seemed to show that a dynamically rolling ladder can provide some benefit over non-rolling ladders.

In the end I concluded that the best approach regarding rolling v. depleting bond ladders would be that each year when I receive that year's bond-ladder payout I should re-run the full bond ladder analysis asking the question "What is the best bond ladder structure for me going forward?", and the outcome each year would tell me 1) whether I should spend that year's payout or use the payout to extend the bond ladder another year, and 2) whether I should adjust the future payout magnitudes up or down.

Best regards,
Kevin

@boston-spam-02101gmail-com

1) 3% Spend Rate Trying to be as respectful as I can with forum users 😌, my wife and I are not in danger of running out of money in retirement even if hit with prolonged US financial threats (within historical reason). We are financially independent and very comfortable with how much we spend and our standard of living. That obviously plays a big part in how we structure our retirement financial plan, which only applies to us, and will look different then other's plans 😘.

2) Bond Ladder duration Since our asset allocation (AA) is about 69% stocks, we are covered if inflation increases. Even though we are about 6 years into our retirement and sequence of return risk is diminishing, the length of our bond ladder is protection from an admittedly low probability of major financial disruptions. We sleep well at night.

3) TIPS v T-Bonds in your bond ladder Short answer is we have our bonds set. No point in changing now. I am comfortable with the yields our US Treasury yields, and future inflation would have to be above 4.5% for many years to be a problem.

4) US-only v. International Diversification I appear to remain the lone wolf in investing only (mostly) in US market index funds. I don't want to rehash this debate as there is another thread on the issue. I just look at ROI, US beats everybody else longer term. That's money in your retirement pocket. Given that we invest in companies and not countries, ROI is what counts for me. Not buying the diversification argument.

Again, great respect to all forum users.

@jkandell Can you explain/outline how you use your TIPS ladder? Living off on interest payments, using only when they come to end of term, combination??