@pizzaman Actually this is what has been keeping me up at night. Ticking time bomb, and the administration seems scared too, with the constant all caps imploring for a fed rate decrease, which could also be catastrophic ecomomically.
@hines202 Much to worry about, no question. I am 100% confident that tax rates will go up in the future, when? No idea. What do you think US Treasury yields will do this year based on my previous post??
The idea that the US stock market can "no way" keep going up has been thrown around for the past 20 years, but it keeps going up. I think we need to look at the US stock market (not country's GDP) as being different from most other countries stock markets. The most important thing for the US stock market is making a profit, period. The shear size of the US market and immense size of individual US companies makes for a powerful force for profit. With the US Supreme Court's Citizens United ruling, politics is another powerful force, funded by big companies, to ensure that tax policies and other legislation is implemented to ensure company profit. As a result, companies are still making plenty of money and the US stock market keeps going up. Am I OK with why the stock market is going up? Of course not, nobody should. But that's the reality we are in, and the reason, for now, that I am at an asset allocation of 70/30, all in US stock market. Will it all come crashing down someday? Perhaps, but not today.
New question. Right now I have a US Treasure zero coupon annual bond ladder that goes from 2 year to 11 years (taken out in October 2023 in the 4.6% to 4.8% range). If I wanted to extend it out going from 12 years through 22 years, what's the best way to do it (in terms of return, taxes, etc.). 10 year US treasuries are at 4.4% and 20 year is at 4.8%. A quick quote from the internet for an immediate annuity that starts 10 years from now and lasts 10 years with an up front cost of $100,000 pays out $1,718 per month. Do I extend my treasure ladder, get the annuity, or maybe TIPs????
@pizzaman It depends how affected you would be by inflation in years 12-22. If this ladder is for something important where inflation would take it away, then you know my answer: TIPs ladder. If however longevity risk is the larger issue, then an annuity that had at least some 2-3% built in adjustment might work too; you could compare it's break even directly to the TIPs ladder. Is the ladder for essential expenses or for play money?
Essential expenses. Since TIPs only come in five, 10, and 30 year intervals, I assume you buy them on the secondary market, how does that work considering they adjust for inflation every 6 months?? "then an annuity that had at least some 2-3% built in adjustment might work too". Not sure what you mean about a 2-3% adjustment, no annuity has inflation protection if that is what you are talking about?
Thanks!
I won't comment on any of your options that you mentioned because I do not know what your goal is. As a starting point, you could take the RISA (Retirement Income Style Awareness) found on the Retirement Researcher website. It might help you determine how your personal preferences lean you to one strategy or another. There are a lot of resources to learn about this if you are interested.
Other tools that might be helpful is the Tips Ladder Generator found on: Tipsladder.com It will build a ladder in seconds given the criteria you are after. It will show you the cash flows that get generated each year and you will see that it is not at all a perfect X$ per year due to the lack of maturities that are available each year. But it is probably the best tool if you want individual bonds.
Another is Blueprintincome.com a website that can provide more details around immediate and deferred annuities. There are annuities available that are life, Life and period certain or period certain only that will adjustment annual payouts by 1 to 3% but I don't think there are any that will track "actual" inflation. They are probably fairly priced because there is no additional actuarial uncertainty by just providing a lower value initially and then increasing it every year. Keep in mind that the payouts on any of these annuities is a combination of: Return of your principle, return generated by insurance company investments, mortality credits and administrative costs. With a period certain only annuity, you do not receive any mortality credits so the payout will be just the combination of the other factors. As an example, my wife had multiple options available for her pension and we ended up taking a 15 year period certain only that had an IRR of 5%. We did not need the lifetime protection that a life annuity would provide. Our other option would be to take a lump sum and try and invest it to beat the 100% guaranteed 5% ROR.
One other option that you did not mention that may be worth considering. 1. Having an estimate of the expenses you need to cover starting in 10 years, calculate the premium that would be required to generate that income assuming the age you will be in 10 years. 2. Purchase a 10 year MYGA today that will grow at 5% to 5.5% depending on the rating that will provide that premium you will need to buy an annuity to cover your expenses. In 10 years, you can re-evaluate your need for the income and then evaluate what option might be best for you then. You have to recognize that the MYGA will have surrender charge if you take it out prior to 10 years.
If you did not want to lock up your money, you could buy a fixed term ETF (Nominal Treasury, TIPS, Corporates, Muni) that matches your style with a known ROR that is liquid but still subject to interest rate risk. The ROR will likely be about 1% less than a MYGA so that is the price of liquidity.
Good Luck!
@golich428 Thanks for the links! The TIPs link will take me a little time to get comfortable with it and to understand what it is telling me. I did take the RISA when it first came out, what, 2-3 years ago or so. Not to knock it (it asked a lot of good questions) but it kind of told me what I already knew. We are over 5 years into our retirement and I am very comfortable with our retirement plan. I am just looking to tweak it in the 12 plus year time frame. We have no kids so any excess at EOL will likely go to charity. We have more then enough to survive retirement, so I am not looking to go nuts with growth. I do have a growing concern about the financial future of the US in the 10 plus year time frame with the growing debt, ignoring climate change, etc. Just looking for a safe way to invest in that time frame.
@golich428 @jkandell Looked at a TIPs ladder more, because of the uneven payouts (as @golich428 indicated), including starting at year one according to the TIPs ladder link, that doesn't work for me. I don't need more income for the next 11 years. MYGAs don't work either because they only go out to 10 years. Instead of an annuity I would just invest that amount in the stock market for the next 11 years, so it doesn't really add anything. Predicting what inflation will be in 12 plus years is of course impossible, and it's that time frame I am trying to make safer. So, what I think I will do is just add another US Treasure by the end of this year that pays out 12 years from now, and then each year going forward buy one more year extending the ladder. Keep it simple, right?
@pizzaman My two cents is that Golich's final suggestion is the simplest, given your are just fine-tuning 12y+ and your lifestyle is at stake with this money: "you could buy a fixed term ETF (Nominal Treasury, TIPS, Corporates, Muni) that matches your style with a known ROR that is liquid but still subject to interest rate risk." Set it and forget it. The "interest rate risk" might even be a benefit given it incorporates changing expectations for inflation, climate change, politics.
Not sure I understand how fixed term ETFs work. How and when do they payout? "The "interest rate risk" might even be a benefit given it incorporates changing expectations for inflation, climate change, politics." Not sure how that works either. I don't need/want any income from these things until the 12+ year time frame. My biggest fear for years 12+ is tax rates, Social Security, Medicare. At least with zero coupon Treasuries I know exactly when they will payout and how much. If I have to, I can still sell the Treasuries on the secondary market and lose a little bit. Biggest risk is if interest rates go above 5% and stay there. I understand that Treasures are not protected from increased tax rates, but what is? This circles us back to ROTH conversions over then next 4 years to take advantage of the present low tax rates. Lions and Tigers and Bears, O my.
@pizzaman For instance, https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders. Since you know what years you want to be funded, these might fit. These ETFs pays out the equivalent of interest of the underlying bonds twice a year. Then they pay their "principal" back close to the time the fund matures, again like a bond. They have treasury corporate even TIP funds with fixed maturity. So the duration decreases each year as the bonds gets closer to maturity. I know some bogleheads do the same thing by mixing long and short term bond funds so that the overall mix has a decreasing duration each year equal to their liabilities. This doesn't eliminate all risk but it is closer to buying individual bonds than a regular ETF that just keeps its duration the same year after year. Is this notably better than just buying treasuries? maybe not, but may be a bit easier to have one fund each year rather than multiple treasuries.
My commends are starting to overlap with my Long Term Threats to Your Retirement Plan thread. Anyway:
@jkandell @golich428 Thanks guys for the great ideas and taking the time to noodle on this. I guess I need to decide what I think is the biggest risk to my retirement finances in the 12+ year time frame. As you can probably tell I am waffling on it. Before the passage of OBBB bill I was not that worried about it because I assumed my stock allocation would generate enough of a buffer to cover any problems in the 12 years+ time frame. But the passage of OBBB has me raddled. It was generally assumed that political pressure from seniors would make SS, Medicare and Medicaid the third rail and "no way" would politicians let those programs reduce benefits. Well, that's not what has happened. Medicaid funding will be reduced by 100’s of billions of dollars (over 10 years) and several million people will likely lose their health insurance or level of care. While that will likely not affect my wife and I directly (other than health Ins. costs going up even more), it will affect a family member who is in a memory care unit at an assisted living facility. That person will runout of her own money in a few years (now speeding something like $90,000/year) and will then be forced to apply for Medicaid. My wife and I will likely need to help out financially (without hesitation), which will need to be taken into account in our finances. Now, will SS and Medicare be fixed? Medicaid wasn't. Don't know, but we must be prepared if they are not. Now add in likely rising tax rates, and we have problems. Possible fixes to SS and Medicare my not affect those in or close to retirement, but do you have kids or grand kids? Will you need to help them out finically in the future? Will you need to add that into your PRC plan? Something to think about. Sorry to be Deby downer (no offence to people named Deby) but using PRC to look into the future is exactly what it was designed to do.
@jkandell Your recommended link does not seem to work 🤔.
https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders
TIPs version: https://www.ishares.com/us/products/337462/
PS. I'm trying to not post much until they restore the missing posts since 7/10.
After reviewing all the great posts to this thread and looking at my situation, I am going to stick with my Zero Coupon US Treasuries ladder. I just extended it one more year into 2037 at a yield of 4.80%. Since I plan on keeping them to maturity, future interest rates wouldn't matter. The biggest threat is inflation, but I find it hard to imagine that inflation will stay above 4.8% for very long if and when it goes up from where it is now. Nothing is save from every situation, but I think, for me, this is the safest route to take. Again, thanks everyone!
