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Rungs on the bond ladder
Old 02-03-2017, 07:55 AM   #21
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Rungs on the bond ladder

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Originally Posted by GravitySucks View Post
As the equity portion of my IRA grows I have been rebalancing by buying another rung on the bond / CD ladder. Bonds are in Bullet type target date funds.
I now have 8 years of non discretionary expenses layer out the first being accessible in a year and a bit, so 9 years out.
I'm starting to think this is about as far out as I want to go at current rates as even mild inflation erodes purchasing power that far out.
So how do you deal with your bond ladder and time frames?

We have established a bond ladder within DH's and my IRA(roughly equal) as well. DH's RMD's start this year and mine start in 2019. So the first bond to mature in DH's IRA later this year, is approximately equal to his required withdrawal and all other bonds maturing in future years are approximately equal to projected RMD's. We just purchased the next rung on the ladder for the year 2026. At this point we will just add one more rung each year. Like Gravity and PB4uski, some of the bonds are in Guggenheim target funds. Others are direct bonds from the issuer. It depends on what is available at the time that we purchase. Our own rule is not to own more than one bond (between our 2 accounts) from any single issuer. One thing I don't like about target date funds in addition to pb's point about final year reduced returns, is the payout does not occur until 12/31 of the target year. So for us, we have to invest in the year prior to the RMD in order for it to be available for the year of the RMD. That reduces returns further. I am hoping that as interest rates rise money market returns increase so that we will get some return for the year that it is in cash. We intentionally don't want to withdraw the RMD until December of the year we are required to as we don't pay any income taxes during the year and will direct our brokerage to withhold our entire State and Federal estimates from that December withdrawal. Our accountant has advised us that this is completely legal. We realize that this plan (owning bonds outright instead of bond funds) subjects us to interest rate risk, however these funds will be withdrawn in their respective maturity years and we sleep well at night knowing that our SWR, which is less than the RMD's is predetermined for the next 9 years. We will invest the excess of RMD less taxes in our taxable accounts. The remainder of our fixed income calculation is in our taxable accounts in Vanguard muni intermediate funds, I bonds and Taxable CD's. As we have no intention of liquidating the VWITX, I worry less about interest rate risk, as the duration of that fund will eventually adjust for rising rates.


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