Best Way to Cover Essential Expenses During ER

[Cat-tirement]

This will cover us until SS at 70.5 (unless future analysis shows us better off taking SS earlier). I see no need for an annuity in our case.

Won't one of you take Spousal SS at FRA?

That is on my radar, but I tend to view it more as bonus funds just in case SS gets cut back. In any case, I figure that I will do a more advanced SS strategy analysis to determine timing when I get closer to 62.

 

[Katsmeow]

That is on my radar, but I tend to view it more as bonus funds just in case SS gets cut back. In any case, I figure that I will do a more advanced SS strategy analysis to determine timing when I get closer to 62.

What I meant was that if two of you planned to wait until 70 for SS, you would surely have one take spousal at FRA since that is free money (assuming the law doesn't change).

 

[RobLJ]

I'm planning to take a larger % from the portfolio until SS and DW can 72t from her IRAs. It's about 2.5% now; 5% when DW retires, then back to 3.75-4% when SS kicks in.

 

[Trooper]

Stable Value Fund vs CD Ladder

Hi...As a follow-up to my initial question about a year ago, I came across an option for which I would like your opinion.

My 401(k) plan through Fidelity offers a Stable Value fund as an investment choice. Its 1/3/5 year returns were 1.86%/1.82%/2.10%, and its ER is 0.32%.

Instead of the CD ladder, my thought is to put the monies intended for the ladder into the Stable Value fund. The fund has restrictions on withdrawals, but those pertain to transfers to "competing" funds. I would only withdraw out of the fund for use in spending. With rising (maybe?) interest rates in the future, the fund seems like a better choice than locking up short-term money in CDs.

Given a planned retirement date in the next 6-8 months, high market valuations, and interest rate rises coming (maybe), I am just a bit nervous about sequence of returns risk, I guess.

Would love to hear your thoughts.

 

[pb4uski]

Absolutely. 1.82% with low credit risk and no interest rate risk is about as close to a slam-dunk as you can get.

 

[GreenER]

I have a Fidelity fund at work too. What stable value fund are you considering? I:d like to see if it is on offer in my plan?

 

[tmm99]

Hi...As a follow-up to my initial question about a year ago, I came across an option for which I would like your opinion.

My 401(k) plan through Fidelity offers a Stable Value fund as an investment choice. Its 1/3/5 year returns were 1.86%/1.82%/2.10%, and its ER is 0.32%.

Instead of the CD ladder, my thought is to put the monies intended for the ladder into the Stable Value fund. The fund has restrictions on withdrawals, but those pertain to transfers to "competing" funds. I would only withdraw out of the fund for use in spending. With rising (maybe?) interest rates in the future, the fund seems like a better choice than locking up short-term money in CDs.

Given a planned retirement date in the next 6-8 months, high market valuations, and interest rate rises coming (maybe), I am just a bit nervous about sequence of returns risk, I guess.

Would love to hear your thoughts.

Wow, yours is so much better than mine! (mine is 0.83%/0.70%/1.12%)

 

[alaska55]

I would call vanguards annuity desk. They sell annuities and cut out the salemen. You get the same rate they give the big boys. Its thru a company called Income Solutions.

 

[Trooper]

I have a Fidelity fund at work too. What stable value fund are you considering? I:d like to see if it is on offer in my plan?

Hi GreenER,

The Stable Value Fund offered through my Fidelity 401(k) is BNY Mellon Stable Value.

 

[Live And Learn]

I'm confused on how anything but the interest on a CD ladder (or the implied interest on a period certain SPIA) actually can be considered "guaranteed income". I obviously need to read more on the subject. To cover $50k in expense at 1.8% you'd need to invest $2.8mm --- unless what we are really talking about is "guaranteed source of funds" in which case the $200k bond / cd ladder works.

 

[Rothman]

I don't think it's appropriate to compare stable value funds which are made up of equities and bonds to CDs. CDs are completely safe capital and stable value funds can lose money in a market correction. I know stable value funds and dividend based funds have rallied as CD and bond rates neared zero but the underlying risk must be considered.


Sent from my iPad using Early Retirement Forum

 

[Trooper]

...To cover $50k in expense at 1.8% you'd need to invest $2.8mm --- unless what we are really talking about is "guaranteed source of funds" in which case the $200k bond / cd ladder works.

Your latter assumption is correct, Live and Learn. Once I retire I'll be in withdrawal mode, so looking for a stable source of withdrawals.

 

[Trooper]

I don't think it's appropriate to compare stable value funds which are made up of equities and bonds to CDs. CDs are completely safe capital and stable value funds can lose money in a market correction. I know stable value funds and dividend based funds have rallied as CD and bond rates neared zero but the underlying risk must be considered.

There are no equities in the Stable Value Fund I am considering. It is comprised of 100% cash and cash equivalents, with an average duration of 3.15 years, and a credit quality of mostly AAA and AA.

The risk with this fund, IMO, is that the stability is guaranteed by contracts written by insurance companies. Therefore there is the risk that the insurers could have solvency issues.

 

[pb4uski]

I don't think it's appropriate to compare stable value funds which are made up of equities and bonds to CDs. CDs are completely safe capital and stable value funds can lose money in a market correction. I know stable value funds and dividend based funds have rallied as CD and bond rates neared zero but the underlying risk must be considered.


Sent from my iPad using Early Retirement Forum

I disagree. I'm not sure what sort of funds you are thinking of but what you describe are NOT stable value funds. See Stable value fund - Bogleheads

Stable value funds are capital preservation investment options available in 401(k) plans and other types of savings plans. The funds are comprised of high quality, diversified fixed income portfolios that are protected against interest rate volatility by contracts from banks and insurance companies. Stable value funds are designed to preserve capital while providing steady, positive returns. Stable value funds are conservative and are considered one of the lowest risk investment options offered in 401(k) plans.

Essentially a CD substitute.

 

[Rothman]

thanks for correction pb4uski, you are right what I looked at was income replacement and stable value bond funds and they include equities and bonds, so they are using stable value as a marketing term not a fund definition. Can you point me to the funds you mean by this definition, thru Vanguard or Fido?

 

[hnzw_rui]

Can you point me to the funds you mean by this definition, thru Vanguard or Fido?

I remember Vanguard has a stable value fund but it's limited to 401k, 457b, etc. accounts. Can't get it through IRA or brokerage.

 

[scrabbler1]

The Stable Value funds I was in over the years were specially created ones for my 401k back in my working days. Whenever my employer changed 401k administrators (which happened a few times in my 23 years with them), the new plan always included a SV fund.


When I left the company in 2008, I did want to know what was in the SV fund so I could find something reasonably similar in the Rollover IRA I would be moving the 401k's money into. For me, it was somewhat similar to an intermediate-term corporate bond fund so I ended up choosing that as a counterweight to the S&P500 index fund I had in the 401k and the Rollover IRA.

 

[Trooper]

Can you point me to the funds you mean by this definition, thru Vanguard or Fido?

Unless you are still w*rking and are enrolled in a 401(k) that offers a Stable Value Fund, you won't be able to invest. I believe this is because the insurers that write the contracts to guarantee the stable value want a relatively 'stable' (no pun intended) investor base, like an employee workforce.

Questions Answered - 401k Investing, Financial Planning and Other Investments | Stable Value « Stable Value

 

[daylatedollarshort]

We left several of our former 401Ks in place so we have 3 stable value funds to choose from and have been using them all.

 

[Trooper]

We left several of our former 401Ks in place so we have 3 stable value funds to choose from and have been using them all.

My plan as well. I was originally going to move my 401(k) to a Vanguard IRA upon retirement, but now planning to leave at least a portion of it with Fidelity, to avail myself of the Stable Value fund.

 

[youbet]

Unless you are still w*rking and are enrolled in a 401(k) that offers a Stable Value Fund, you won't be able to invest. I believe this is because the insurers that write the contracts to guarantee the stable value want a relatively 'stable' (no pun intended) investor base, like an employee workforce.

Questions Answered - 401k Investing, Financial Planning and Other Investments | Stable Value « Stable Value

Not quite. You can quit working but you need to leave your money behind in th company's 401k plan. This is a strategy many folks follow. There are downsides, in some cases, to rolling over to an IRA.

 

[Trooper]

You are correct, youbet. I *assumed* that the question came from someone who is already retired and has no 401(k). I should have generalized my response.