Sand
Footballguy
Yep - seminal article on the bond tent below. It makes a lot of sense. Of course, he wrote this before Jerome strapped a rocket to the Fed and lit the wick. Still, in normal times this makes a lot of sense.How many years of expenses do you plan to be able to cover with cash / bonds when you retire?I'm estimating our expenses in early retirement to be about $120k in today's dollars. About half of that will be covered by my wife's SS and my FERS pension. The $50k CD ladder is an option for covering the other half. Normally I would cover that other half by selling stocks, realizing as much untaxed LTCG as possible each year. The CDs will allow me to avoid selling in a bad market.You’re a few years ahead of us but I’m planning very similarly. No whole life here, we surrendered our policies back in 08 to buy land (didn’t work out nearly as well as it could have in a different location or if we had bought a rental).Last week I sold my 0.0% fixed rate Oct 2022 iBond ($10k) and my 0.4% fixed rate Jan 2023 iBond ($10k). Will buy a $10k iBond near the end of this month.You’re getting a better rate with the new I bonds now than you are with the old bonds now.Purchased 10k in ibonds October 2022, so was over the 15 months at start of year (well, over 12 months but with the last 3 being very low interest) and redeemed last week. Buying a new 10k now is just a brand new deal with a brand new clock, just with a lower rate than in October 2022, but with part of that rate being locked in. All correct? Anything to keep in mind (plan on buying near end of month, as I know you get the full month worth of interest).
Personally, I sold our bonds that didn’t have the fixed rate and might buy more before the next rate change (May IIRC)
I've also constructed the majority of a 3-year, $50k CD ladder to help protect against bad sequence of returns risk early in retirement. Retiring in 2027. I'll keep rolling over the CDs in retirement unless the market is in the tank. Also have a whole life insurance plan with a surrender value of around $50k which will probably be the first thing I offload in the case of a downturn, even ahead of the CDs.
Its just been the last couple of years that I have started working on the fixed-income component. Still learning.
Depending on your expenses you’re probably in a good spot.
I'm holding off on my own SS to allow me to be able realize those untaxed LTCGs.
More than half our expenses will be covered by my FERS and military pension but that still leaves about $50-80k annual from our portfolio. I think we’ll put 4 years in cash / I bonds / other short term bonds but we haven’t decided yet. That will be about 16-20%, I think we’ll keep the rest in equities.
Been doing some deep diving on retirement websites and podcasts the past few weeks with work a little slower over the holidays. The Bucket Strategy vs the Glidepath vs the Pie Cake. In the end there are probably more similarities than differences. I did find it interesting that an increasing equity percentage as you move through retirement, to combat the sequence of return risk in the first decade or so, seems to mathematically be optimal.
The Portfolio Size Effect And Optimal Equity Glidepaths
How the portfolio size effect impacts the optimal asset allocation glidepath of a lifecycle or target date fund, and how a bond tent reduces volatility risk.
www.kitces.com