Retire on 100% U.S. Treasury Bonds

[daystar]

So, I just read "Your Money or Your Life" and the final chapter said that the only investment you should own are Long-Term U.S. Treasury Bonds, with a small reserve of money in a money market account. Maybe I'm crazy, but this just seems like bad advice.

Have any of you retired with an asset allocation of 100% U.S. Treasury Bonds/Notes?

[clifp]

Quote:

Originally Posted by daystar So, I just read "Your Money or Your Life" and the final chapter said that the only investment you should own are Long-Term U.S. Treasury Bonds, with a small reserve of money in a money market account. Maybe I'm crazy, but this just seems like bad advice. Have any of you retired with an asset allocation of 100% U.S. Treasury Bonds/Notes?

I have meet people (through this forum) that plan to retire with a portfolio pretty close to that. But actually retirees no.

I guess I read too many stories of wealth Germans moving all their money into Wiener Republics bonds early in the 20s when there were offering attractive interest rates to ever think trusting your all your money to a government was anything other than foolhardy.

Historically more countries have defaulted on their sovereign debt than have not. The US maybe an exceptional country, but I wouldn't call our fiscal policies these last 50 years exceptionally smart.

[W2R]

No way am I going to put 100% into any one investment. I agree with Clifp - - for me it is just too risky to depend completely on anything, even the US government. Diversify, diversify, diversify....

[brewer12345]

IIRC the author of YMOYL got squeezed by inflation and was washing Ziploc bags for reuse and doing similar things to make ends meet. Ignore his investment advice.

[Ready]

Quote:

Originally Posted by brewer12345 IIRC the author of YMOYL got squeezed by inflation and was washing Ziploc bags for reuse and doing similar things to make ends meet. Ignore his investment advice.

And I seem to remember he died at a very young age, so he did not experience what happens when you live into your 90's and have heavy inflation to deal with. And, rates were higher on bonds and treasuries when he wrote the book, so they seemed like more of a sure thing.

[ERD50]

Quote:

Originally Posted by Ready And I seem to remember he died at a very young age, so he did not experience what happens when you live into your 90's and have heavy inflation to deal with. And, rates were higher on bonds and treasuries when he wrote the book, so they seemed like more of a sure thing.

Yep, died at 58 in 1997 - here's some detail:

Joe Dominguez, 58, Championed A Simple and Frugal Life Style - NYTimes.com

Quote:

A warm, comical man, Mr. Dominguez acted as a living example of the frugality he espoused. After growing up in Harlem, he went on to earn a plump salary as a stock analyst on Wall Street, but retired at age 31 with a nest egg of about $100,000. For the rest of his life, he lived on the interest, about $6,000 a year.

You could draw 3.7% non-inflation adjusted for 27 years without any gains at all. He was getting 6% interest, so no problem. But 27 years of inflation, and he would have lived through the 80's inflation blow-up, would have decimated the buying power.

If your nest egg is big enough relative to withdrawals, you can be 100% in Treasuries. But with that ratio, you could also be 100% stocks, and still more than survive any 30-45 year period in US history. Historically, 100% stocks has been a far safer way to support a retirement than 100% treasuries (given the same WR%).

-ERD50

[pb4uski]

Quote:

Originally Posted by daystar So, I just read "Your Money or Your Life" and the final chapter said that the only investment you should own are Long-Term U.S. Treasury Bonds, with a small reserve of money in a money market account. Maybe I'm crazy, but this just seems like bad advice. Have any of you retired with an asset allocation of 100% U.S. Treasury Bonds/Notes?

I can see it if your WR is very low and you are very risk averse, but otherwise it sounds downright stupid to me.

[imoldernu]

Quote:

Originally Posted by daystar Have any of you retired with an asset allocation of 100% U.S. Treasury Bonds/Notes?

To answer the question... in light of the combined knowledge of members, I have to sheepishly say... Yes... not 100%, but nearly. I couldn't defend this, as I'm sure moving in a different direction (and if i were a little smarter)... would have given a better return. Still, with a life expectancy horizon that is shortening... expect to continue on this path.

FWIW, the Ibonds that we bought during this period, were providing better returns than today, and the amounts per/person that could be invested were @ $30K/yr. With limited assets that have to last, we'll stick with what we have.
Composite Returns during the earlier years:

[Midpack]

Quote:

Originally Posted by pb4uski I can see it if your WR is very low and you are very risk averse, but otherwise it sounds downright stupid to me.

But what do you really think?

YMOYL was written in 1992. The big takeaway for most was living within your means, keeping money in perspective (doesn't buy happiness), financial independence, and less the investment advice.

100% treasuries isn't without risk, or even the lowest risk if past history is any indication. Longevity and inflation are big concerns.

We should all probably take no more risk with our portfolios than needed, but few could survive a long retirement with only Treasuries. It would require a very low withdrawal rate, but a few people here are planning on similarly conservative approaches. I think most here have 20-70% stock asset allocations, many between 40-60%. But we're all responsible for our own plans.

[MooreBonds]

Quote:

Originally Posted by daystar \ Have any of you retired with an asset allocation of 100% U.S. Treasury Bonds/Notes?

When I first thought about retirement (back when I was in my mid-late 20s), I assumed it would be similar to my grandparents' style: 5 year Treasury Bills and CDs.

Of course, when you retire in 1980 (like my grandparents) with generously high rates while you can control your costs and inflation to some degree - AND have actual 'gains' on your SS payments, compared to what you paid into the system - it can create a bad example to follow.

Then, finding this site circa 2004, opened my eyes to the real effect of inflation, as well as what historical portfolios would allow. I did previously understand the effects of inflation, but I didn't have a true perspective of how unique the 1980-late 2000s period was in terms of interest rates, and how it would be probably unlikely to recur.

[haha]

Quote:

Originally Posted by imoldernu To answer the question... in light of the combined knowledge of members, I have to sheepishly say... Yes... not 100%, but nearly. I couldn't defend this, as I'm sure moving in a different direction (and if i were a little smarter)... would have given a better return. Still, with a life expectancy horizon that is shortening... expect to continue on this path. FWIW, the Ibonds that we bought during this period, were providing better returns than today, and the amounts per/person that could be invested were @ $30K/yr. With limited assets that have to last, we'll stick with what we have. Composite Returns during the earlier years:

You give these spotty disclosures that are very hard to put together. I quit trying some time ago so I may have missed some things, but it seems that you live quite well (2 homes), pay little or no income tax, are not interested in investing (and have at times implied that you have no investment portfolio), Additionally you are getting on, and have both been retired for many years.

Where does the money come from? 1, 2, or more pensions? Good social security? An investment portfolio that you just call by some other name?

Because it is just not cheap to keep two homes, or to live many years with no or little earned income.

Ha

[growing_older]

Despite his Wall Street background, Joe Dominguez seemed to suffer from strong recency bias in making the 100% Treasuries recommendation. By putting all his efforts on the expense side and living frugally, he didn't need or want the complication of managing investments. He seems to have believed that Treasuries would naturally provide returns near or slightly above inflation rates, so would be adequate for his purposes. He was completely wrong about that, so even folks who strongly follow his Your Money or Your Life philosophy would be strongly advised to seek better investment advice. His plan as described in the books using 100% treasuries does not work as he expected and it should be avoided.

[brewer12345]

Quote:

Originally Posted by haha You give these spotty disclosures that are very hard to put together. I quit trying some time ago so I may have missed some things, but it seems that you live quite well (2 homes), pay little or no income tax, are not interested in investing (and have at times implied that you have no investment portfolio), Additionally you are getting on, and have both been retired for many years. Where does the money come from? 1, 2, or more pensions? Good social security? An investment portfolio that you just call by some other name? Because it is just not cheap to keep two homes, or to live many years with no or little earned income. Ha

Drug enforcement inquiring minds want to know!

[ERhoosier]

Sure you can retire on 100% Treasuries......IF your nest egg is massive enough

[imoldernu]

Quote:

Originally Posted by haha You give these spotty disclosures that are very hard to put together. I quit trying some time ago so I may have missed some things, but it seems that you live quite well (2 homes), pay little or no income tax, are not interested in investing (and have at times implied that you have no investment portfolio), Additionally you are getting on, and have both been retired for many years. Where does the money come from? 1, 2, or more pensions? Good social security? An investment portfolio that you just call by some other name? Because it is just not cheap to keep two homes, or to live many years with no or little earned income. Ha

Yeah... sometimes it confuses me, too.
First, the taxes... IBonds are not taxable for the first 30 years, nor is the small annuity. This represents a major portion of our limited capital assets, which to date have not been taxed. This will change eventually. We have been taking from our IRAs, but up until now, still under or below the taxable limit. I guess you could call the bonds and annuity a portfolio, but as they just sit there, I don't think of it that way. Either way, we have taken nothing from these assets.

In the earliest years after we retired in 1989, and before collecting SS @ age 62, we lived from our savings which were invested in CD's, which were paying as much as 8% at the time. Whatever assets we had, came from the sale of my small business, and monies from the sale of the different houses that we owned as we moved 22 times since 1958. Our cost of living at retirement was low, as we were living in our campground, in Illinois, and in a small mfg home in Florida. Throughout those early years of retirement, no earned income, so no taxes. Toughest part was healthcare... less than today, but still $9K to $11K for the two of us.

We took SS @ age 62, and current amt. for both of us totals $25K/yr. We bought our home in the IL CCRC in 2004, to assure ourselves that in the event nursing home expenses ate up our savings, the home would be exempt from the state (payiing for medicaid)... and available for the surviving partner.

Now, as to the 2 homes... sounds a lot more expensive than it is... (Actually 3 homes... Liberty Village inPeru, our home in Florida, and our Campground complex. Curent annual expenses for the two latter places totals about $10K/yr. These two places will be sold within the next few years, freeing up that expense, and puting the value back into our asset base.

Next... our phase II plan kicks in, at age 80... Worst case scenario, we sell our home here and move to the Apartments in Liberty Village. So the austerity math at age 80... to live until age 90. Total 10 years phase II
.................................
$30K for two in the apartments (all expenses: food, utilities, transportation etc included)
$12K medical.
total base expenses. $42K yr.

paid for by:
sale of house $180K est. or $18K/yr
SS @ $25K
total base planned payout. $43K/yr..

This would leave our nest egg... intact.

Yeah, for sure... inflation, changes in the economy, and a million factors that aren't in there, but all in all, for better or worse, that's the plan. Always easier to look ahead, when figuring in a finite horizon.

Edited to add...

Quote:

Sure you can retire on 100% Treasuries......IF your nest egg is massive enough

Massive... yeah... right... Not quite... even Not Not Quite.

I just can't buy into the thinking that one has to live off the income from ones assets, and leave the nest egg intact for the kids, the church or the SPCA. When we get close... we'll take what's left, and go on a world wide tour, or move into the Four Seasons for the final days.

[Independent]

Interesting story.
Thanks for posting.

[Helios]

Wrote to Joe couple of yrs after book. While he would do bond swaps he only loved 30 yr t bonds. I also wrote to Paul Terhost, he used laddered cds, wouldnt change a thing. Not my a/a but I guess their book's stories of er made me go down this path. Not sure what was the spark.

[haha]

Quote:

Originally Posted by Helios Wrote to Joe couple of yrs after book. While he would do bond swaps he only loved 30 yr t bonds. I also wrote to Paul Terhost, he used laddered cds, wouldnt change a thing. Not my a/a but I guess their book's stories of er made me go down this path. Not sure what was the spark.

Interest rates very high when the Terhorsts wrote their book. As rates fell, and stocks took off they invested much more in equity funds.

I looked at both these books when they came out. I think I still have the Terhorst book somewhere. I didn't like the Joe Dominguez book, thought it was an extreme case of fear and caution shutting down life. Then of course later, Vicki took it public and did what these authors usually do, tried to sell the idea, make speeches, etc.

People here are very fast to question the motivation and reject the message of most Wall Streeters or other establishment people, but seem pretty fast to accept any countercultural presentation.

I have never quite understood this.

Ha

[Running_Man]

I have researched this idea and found that in almost all 30 year periods since 1940 if you retired on 45% of the interest from 30 year bonds and invested the difference in new 30 year bonds each year and adjusted spending for inflation there were almost no failures for a 30 year period. Of course this means the amount of money you have to live on would vary with the interest rate on the year you retired.

In the 1980's almost any investment would work, in the Wiemer Republic for German citizens almost no investment would have worked.

As for Joe D. he gave all of his money to charity and really believed and lived what he thought. I disagree with a lot of his ideas, but in a free country people are entitled to their opinion. To call his investment strategy a failure for him is certainly not true as far as his life is concerned, he had all the money he ever wanted and gave the rest to charity. Misguided for others going forward perhaps. Better than spending all your money and retiring on social security alone, certainly.

[CyberBob]

Your withdrawal rate would be key in regard to an all treasury bond portfolio.

As in the story about Groucho Marx, the famous comedian who purportedly once toured the New York Stock Exchange and held court with the floor traders after the closing bell.

Knowing that Groucho was wealthy, one trader yelled out, "Hey Groucho, where do you invest your money?"

"I keep my money in Treasury bonds," is what the leader of the Marx brothers reportedly replied.

"They don't make you much money," a trader shouted back.

"They do," Groucho said drolly, "if you have enough of them."

Bob