Folks Approaching 70 with NO (0) Stock Exposure - How to Secure Guarenteed Income?

[ShokWaveRider]

This post is for those of us who are ~70 years old and do not use or want to use the stock market for any of their future lifetime income and are searching or decent LOW RISK Guaranteed Lifetime Income for their foreseeable future. So PLEASE No Stock Recommendations or reasons to have stock on their portfolio. They want to get the maximum safe return from their nest egg. I do not think I can make it any clearer, discussing stocks will only derail the thread.

Assumptions Not in any particular order.

- A couple has an investable nest egg of around $2m. $1m Qualified IRA and - $1m Taxable Cash.
- They manage their current income well and wish to use the return of their
Nest Egg for Emergencies, Travel, and other discretionary spending.
- They do not have ROTH IRA and do not intend on converting
- They own their own home (No Mortgage)
- They are retired now and are ~70 years old but have not used their nest -
egg to date. They now plan to.
- SS covers their basic needs and current expenses. Both are on Medicare
with a Supplement Part F
- No Stock Exposure
- Inflation notwithstanding, assume the FED Manages to get to the 2% level.
20-25 year time horizon
- Secure the Maximum possible safe MONTHLY return at this juncture from
their $2m Nest Egg.
- Prefer but not totally against staying away from annuities as the returns are
usually well below market rates
- We know Taxes are important but for the purpose of this please ignore
them.
- Up until now the couple have only invested in CDs as they do not really -
understand the overall Bond and fixed income market
- Remember FDIC insurance is $250k single and $500k Joint

I know this is a lot to digest and consider, I was looking at the 500k post earlier, but as usual it got derailed and disrupted by folks who did not read or understand the requirements. I am sorry to repeat myself but hopefully folks will get the idea and respond accordingly.

I am hoping to hear from folks with the same "Won the Game" and do not want to risk their capital approach to the retirement after 70.

Thanks in advance for all your ideas.

 

[aja8888]

This post is for those of us who are ~70 years old and do not use or want to use the stock market for any of their future lifetime income and are searching or decent LOW RISK Guaranteed Lifetime Income for their foreseeable future. So PLEASE No Stock Recommendations or reasons to have stock on their portfolio. They want to get the maximum safe return from their nest egg. I do not think I can make it any clearer, discussing stocks will only derail the thread.

Assumptions Not in any particular order.

- A couple has an investable nest egg of around $2m. $1m Qualified IRA and - $1m Taxable Cash.
- They manage their current income well and wish to use the return of their
Nest Egg for Emergencies, Travel, and other discretionary spending.
- They do not have ROTH IRA and do not intend on converting
- They own their own home (No Mortgage)
- They are retired now and are ~70 years old but have not used their nest -
egg to date. They now plan to.
- SS covers their basic needs and current expenses. Both are on Medicare
with a Supplement Part F
- B]No Stock Exposure[/B]
- Inflation notwithstanding, assume the FED Manages to get to the 2% level.
20-25 year time horizon
- Secure the Maximum possible safe MONTHLY return at this juncture from
their $2m Nest Egg.
- Prefer but not totally against staying away from annuities as the returns are
usually well below market rates
- We know Taxes are important but for the purpose of this please ignore
them.
- Up until now the couple have only invested in CDs as they do not really -
understand the overall Bond and fixed income market
- Remember FDIC insurance is $250k single and $500k Joint

I know this is a lot to digest and consider, I was looking at the 500k post earlier, but as usual it got derailed and disrupted by folks who did not read or understand the requirements. I am sorry to repeat myself but hopefully folks will get the idea and respond accordingly.

I am hoping to hear from folks with the same "Won the Game" and do not want to risk their capital approach to the retirement after 70.

Thanks in advance for all your ideas.

I don't know if this will help you but I am a decade past 70 and have one stock (energy one). The rest is in a mix of treasuries (less than one year), CD's and municipal bonds.

I am a widower and live on SS and income derived from the above. No pension so it's a two legged stool. I make more than I need to live on (small house, inexpensive area, NO DEBT).

My net worth is less than $2 M and I will be leaving that to my only daughter and I have no grandchildren.

My situation is pretty simple and easy to manage. At my age, I don't give a hoot about the stock market and I can get along quite nicely with a mix of fixed income products. It works for me and I have more important things to worry about besides the financial end of things.

Once you are in your 70's, you will start to see health issues starting to show up. Being able to handle that is paramount. Good you have Plan F, as that will pay what Medicare doesn't cover 100%.

Right now, building treasury and CD ladders going out several tears is a good strategy. After 5 years out, their may be lower intest rates and that may be OK if inflation falls.

 

[Car-Guy]

I just made a post in another thread that I could have posted here. (See below) I didn't see this thread in time.


I understand, different strokes for different folks. I made my switch mid summer 2022 from equities to 100% fixed income. Never in my life have I ever been so at peace with my financial investments as I am now. When fixed income rates drop too much I may rethink that, but if rates hold like this just a few more years I won't care.

 

[ShokWaveRider]

I just made a post in another thread that I could have posed here. I didn't see this thread in time.


I understand, different strokes for different folks. I made my switch mid summer 2022 from equities to 100% fixed income. Never in my life have I ever been so at peace with my financial investments as I am now. When fixed income rates drop too much I may rethink that, but if rates hold like this just a few more years I won't care.

Care to share your holdings?

 

[disneysteve]

You said SS covers their spending. How much do they need this money to generate and for what?

I’d probably go with laddered Treasuries and CDs. Right now they can lock in 5+% for a while and generate 100K/yr.

 

[Car-Guy]

Care to share your holdings?

I was getting to that

My tIRA and cash accounts are 100% brokered CD's. About 15 CD's at this time that are laddered from 9mos to 2 yrs and all under the 250k FDIC limits. In my 401k where I have my the most of my money, it's all invested in what they call stable value funds. It's a company (ex Mega Corp) managed fund invested in all sorts (100's) of bonds, (lot's of treasuries) CD's, and the like, but no equities. It has been returning me almost 8% this year.

I actually put too much in CD's in my cash account last year and my "checking account" got a little tight for a while. but that is correcting now that some of the shorter term CD's are maturing.

That along with "our" SS is going to put us back in IRMAA trouble "again" next year when RMD's hit. Still working on that but it's not looking promising..


So yes, I feel like I have won the game.

 

[ShokWaveRider]

You said SS covers their spending. How much do they need this money to generate and for what?

I’d probably go with laddered Treasuries and CDs. Right now they can lock in 5+% for a while and generate 100K/yr.

It is in one of the line items ........ Here. No real income requirements just trying to get the safest guaranteed income.

"They manage their current income well and wish to use the return of their
Nest Egg for Emergencies, Travel, and other discretionary spending"

 

[disneysteve]

It is in one of the line items ........ Here. No real income requirements just trying to get the safest guaranteed income.

"They manage their current income well and wish to use the return of their
Nest Egg for Emergencies, Travel, and other discretionary spending"

Gotcha. I read too fast at the gym between sets.

I’ve only dipped my toes into corporate bonds but I’d probably explore that too as some pay better than Treasuries and CDs. Otherwise 100K per year is a nice slush fund.

 

[RunningBum]

If you assume the fed will get rates under control, you would want to take this time of higher rates to lock in on non-callable long term CDs, bonds, and treasuries (including TIPs).

Hedge that with some shorter terms on the above investments, so if rates keep going up they can reinvest again. The downside is that if rates go down they will have to buy at lower rates.

Hedge that with some SPIAs.

Inflation is probably the greatest concern. TIPS are probably the safest bet to hedge against inflation so I'd consider going large here.

Another concern is if they have a sudden need for a lot of cash. Keep a sufficient amount not locked up in long or even shorter term contracts. Take whatever current savings or money market rates are with that money.

 

[Car-Guy]

Another concern is if they have a sudden need for a lot of cash. Keep a sufficient amount not locked up in long or even shorter term contracts. Take whatever current savings or money market rates are with that money.

+100 already made that mistake... (as I said in another related thread, it's hard to fix stupid) But I'm back to about where I want to be now with my surplus cash. (Almost) I've learned to love SWVXX

 

[pb4uski]

We are vaguely similarly situated to the OP description, other than until now only invested in CDs. We have won the game, will have a sub 2% WR once I start SS in a couple years at 70.

There is no such thing as guaranteed lifetime income. Even for a life annuity, there is a positive, albeit negligible, chance that the underlying insurer could go into receivership. IIRC, it has never happened that a US insurer failed to make life annuity benefit payments, but never say never. Ditto for US treasury securities.. as safe as one can get but in the event of an asteroid, who knows?. So for now I will focus on low risk possibilities... those that are generally viewed as credit risk free.

Monthly income a bit hard to find, but it is easy to convert semi-annual income into monthly income by keeping 6-9 months of monthly withdrawals in a money market fund from which monthly withdrawals are made and then replenish the liquidity account with interest received and if needed, a portion of maturity proceeds. However from what you describe it sounds like there will not be any withdrawals so I don't really understand the "need" for monthly income. If there is not really a need for monthly cash flow from the portfolio then there would be no need to the liquidity account described above.

A safe and easy portfolio would be a ladder of either US Treasuries, brokered CDs or a combination thereof. Both are credit risk free as long as you stay under the FDIC limits with brokered CDs. I would lean towards a 10-year ladder with 10 rungs, one for each year. Such a ladder would yield about 4.85%.

Another easy option, arguably a bit easier, would be to build a 10-year ladder of US Treasury defined maturity ETFs. The yield would be 4.81% and as each ETF matures the maturity proceeds would be reinveted in the next 10-year ETF.

See https://www.ishares.com/us/resources/tools/ibonds for details.

What I do is a little bit more complicated because I enjoy fixed income investing. It is sort of a hobby and gives me something intellectually stimulating to do. We have 52 positions in our fixed income portfolio spread across 4 accounts; taxable brokerage, a tIRA and two Roths and some Treasury Direct I-Bonds that we are slowly redeeming and moving back into the taxable brokerage account.

38% are brokered CDs (being careful not to exceed the FDIC limit for any issuer), 32% are US agency bonds (not full faith and credit but AA+), 18% highly rated corporate bonds, 7% I-Bonds, 4% highly rated preferred stocks (Allstate, Citigroup, MetLife) and 1% in money market (SWVXX yielding 5.25%).

The credit quality distribution is 38% FDIC insured, 40% AA+, 15% A (A+ to A-), 6% BBB (BBB+ to BBB) and 1% below investment grade (BBB- and BB+)... so extremely high credit quality.

The maturity distribution is currently skewed a bit to 2023-2025 and the weighted average remaining term is 3.3 years but I am gradually lenthening the ladder as bonds mature and are reinvested. I'd like to eventually get to 5 years.

About 50% callable. Weighted average YTM is ~5.2%. Most are bought around par... aggregate purchase cost is 99.4% of par.

 

[ShokWaveRider]

We are vaguely similarly situated to the OP description, other than until now only invested in CDs. We have won the game, will have a sub 2% WR once I start SS in a couple years at 70.

Thanks PeeBeforeYouSki . I was hoping you would respond.

 

[Car-Guy]

Once you are in your 70's, you will start to see health issues starting to show up. Being able to handle that is paramount. Good you have Plan F, as that will pay what Medicare doesn't cover 100%.

Another truism. In our case, we have what I consider a really good Medicare Advantage plan (through my ex employer) which has OOP max's set at 3k yr. No big deal even if we have a bad year.

 

[pb4uski]

...I’ve only dipped my toes into corporate bonds but I’d probably explore that too as some pay better than Treasuries and CDs. ...

I have some corporate bonds but recently the spreads to Treasuries haven't been compelling to me. For a 10 year ladder of iBonds ETFs (2024-2033), the Corporate yield is 5.93% vs 4.81% for Treasuries.

If spreads improve and I decide to expand my corporate bond portfolio, I may do it using the iBond ETFs.

 

[tulak]

I would consider a TIPS ladder for most/all of the allocation.

You can get 95k/year for 30 years. That takes you to a 100, which maybe is good enough?

I used tipsladder.com to model: https://www.tipsladder.com/build?in...ap=NearestBond&bondChoiceWithinYear=BestYield

Since SS covers their basic needs, that’s 95k/year extra. Any funds that they have leftover they can use to buy a new TIPS to keep the 30 year ladder going.

It’s not hard to build a TIPS ladder and the great thing is that you can do it right now and you’re done. Guaranteed inflation adjusted income for 30 years.

 

[MarieIG]

Part of our plan is to have a base income to cover fixed expenses. That will include DH's pension, SS and probably three (100% joint and survivor) annuities. I am currently postponing buying a SPIA or triggering payments on my existing annuity as I don't want the income right now. This may cost me in the long run, but my crystal ball is dusty. One of the issues will be whether to include a 3 percent yearly increase when I purchase. I like CDs which pay monthly interest at or over 5% and have been looking at agencies and munis for taxable accounts.

 

[teej1985]

I'd use these:

https://www.etf.com/sections/features/case-blackrocks-new-defined-maturity-tips-etfs

 

[pb4uski]

^^^ Interesting. I haven't bought any individual TIPs as of yet but they are on my radar screen so these defined maturoty TIPS ETFs may be a possibility.

 

[Yipper]

^^^ Interesting. I haven't bought any individual TIPs as of yet but they are on my radar screen so these defined maturoty TIPS ETFs may be a possibility.

Did you catch the news about iShares iBonds introducing TIPS last month?

Never mind... i didn't click the link above.

 

[Happyras]

My thoughts, backed by many, is that the Fed is serious in higher for longer. Until we see reduced spending by the congress, there is no hope for a peak in rates to occur. This is not likely in an election year.

Being of similar age and position, we invest primarily in T-bills, not T bonds. Stocks are not a good risk/reward at this time. T-bills are very liquid, you can sell on any day and receive the funds, just like it was cash in a MM account. We have quite a bit more to invest than many, but I keep MOST durations <1yr and in T-bills rather than CD's. CD's have market value risk if sold early, T-bills at least get sold at a very low margin cost.

One could go longer duration right now at near 5% for 20-30 years, but I think there is more likely higher T-bond rates in the next months. If you need/want monthly liquidity, then ladder out t-bills on a monthly basis for 1 to 2 years and auto roll them. Pretty easy on both Fido and Schwab to DYI buying on the secondary market. I try and buy at auction for a hair better yield.

 

[ERD50]

^^^ Interesting. I haven't bought any individual TIPs as of yet but they are on my radar screen so these defined maturoty TIPS ETFs may be a possibility.

Interesting.

https://www.etf.com/sections/features/case-blackrocks-new-defined-maturity-tips-etfs

The 10 year IBIJ has a real rate of 2.26%. I'm thinking of buying some in my tIRA. Exp Ratio is 0.10% (at least for now, hopefully not a 'teaser rate').

Any reason not to (for my fixed portion of a tIRA).?


-ERD50

 

[Bruno]

I believe this method would let a lot of us sleep better at night. I have just hated to pull the trigger.

 

[pb4uski]

As I'm considering these iBond defined maturity ETFs, I can see them as being useful for simplicity for Corporates and to the extent that one desires them, High Yield and Municipals because they all provide diversification easily.

For Treasuries and TIPS, I'm struggling to "get" the benefit of the iBond product over just buying Treasuries and TIPs that mature in a given year but I still am mulling it over.

One thing to consider about these products that I'm aware of having previously owned Bulletshare defined maturity bond ETFs is that the terminal distribution is in December. So as bonds mature during the distribution year, the maturity proceeds are reinvested short-term. In that past when short term rates were really low, that created a drag on yields in the maturity year. Now of course, thatis less of a concern, but just comething to be aware of. Back when short term rates were so low, I sidestepped that problem by selling about 12 mon before the maturity distribution.

 

[Yipper]

I think some of the value is in simplicity maybe. I also think these new ones mature in October, not that it matters much vs. December.

 

[MichaelB]

I have some corporate bonds but recently the spreads to Treasuries haven't been compelling to me. For a 10 year ladder of iBonds ETFs (2024-2033), the Corporate yield is 5.93% vs 4.81% for Treasuries.

If spreads improve and I decide to expand my corporate bond portfolio, I may do it using the iBond ETFs.

Your approach makes sense. Any concerns that 10 years may be a bit too far out?