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Old 09-15-2023, 08:07 PM   #101
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I'm reading these fixed-income / ladder / etc discussions with great interest. I'm almost 67 and I took SS at my FRA because the long-term training gig I was living on abruptly disappeared. I may get occasional jobs to pad the account but it's not something I can count on. Now I need to figure out what to do going forward.

I'm one of those who couldn't live very well on fixed income alone -- just not enough in the tank. But a chunk of my net worth is in two rental properties that throw off a good return. I also have a mortgage on my house -- only 2.75% & tax writeoffs so I'm in no hurry to pay it off. The rentals cover the mortgage, household expenses, and utilities. SS covers almost everything else.

My liquid investible $$ is currently in a few stocks (which I mostly ignore, given my track record with stock investing), and mostly in 6-month Tbills and MM funds returning 5-5.5%. I've only been living on this for a few months, but I'm currently drawing about 2% of that investible $$. In 4 years I'll pay off a car loan and the payments are about equal to that 2% draw, so maybe then I won't need regular withdrawals at all? (I could pay off the loan, but it's only 3.25% so I'd rather leave that money in Tbills.) But I've also taken some big withdrawals to install solar, looking at a heat pump, etc.

I thought I would live very comfortably on a set of investing strategies (60/40 and some more complex stuff) that produced a great consistent return for the last 35 years -- until almost the day that I freed up my cash and invested in them, right when everything went wonky in early 2022. Great timing. I'm not sure if they'll work in a rising-rate environment. (But then I'm not sure stocks will either ...)
For now they're clawing back the 2022 losses but it's definitely not something I can count on any more.

What would you do in that situation? Stick 60% of my investible cash in VOO or similar and build a ladder with the rest?
Iíd plug my situation into any number of tools, FIcalc, FireCalc and Fidelityís Retirement planner are the tops and see what allocation they would give me. You might be surprised. All three, at my level of expenses to assets say I can live to 100 with 0 in equities. See what they say for you.
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Old 09-16-2023, 12:10 PM   #102
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I went through all of them, using their default allocation. I didn't see a recommended allocation though? What am I missing?

I think FireCalc is confusing and obtuse. I assume "Spending" is spending that must be funded from retirement savings, but they don't say. So I entered 0 for "Start Here Spending" and entered my income/expenses in the "Other Income/Spending" page, so I think it's consistent. It projects 100% success, with my account growing between 4x to 15x at the end of 30 years. So that says I'm good.

FIcalc seems kinda bare-bones but I tried to model my situation. It projects 100% success rate, with 2x - 15x portfolio growth.

Fidelity's "Build your Free Plan" tool just seems to be a ledger. "Here's the stuff you entered." Their Retirement Planner claims my assets will reduce by 2/3 after 25 years, even though they say 4% withdrawal lasts "forever" and I'm only drawing 2%. Still slogging my way through that one.

I didn't include the value of my house or rental house, so that's an addition to my net worth.

So that says "assume X% growth in your investments" has 100% success. But my question was "what's the best way to GET that X% growth."
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Old 09-16-2023, 12:54 PM   #103
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True for dividends, but I don't think so for LTGG.
I thought only individual Stocks or Stock Funds have the benefit of (> 1 yr) Long Term Cap Gain Tax rates of 15 - 20%,

Where as gains from Individual Bonds or Bond Funds or CDs in Taxable accounts are all charged at Ordinary Income rate.

I am not sure & want to learn, what do you think ?
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Old 09-16-2023, 01:18 PM   #104
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I thought only individual Stocks or Stock Funds have the benefit of (> 1 yr) Long Term Cap Gain Tax rates of 15 - 20%,

Where as gains from Individual Bonds or Bond Funds or CDs in Taxable accounts are all charged at Ordinary Income rate.

I am not sure & want to learn, what do you think ?
Bond funds do occasionally pay out cap gains distributions. They are usually short-term, but not always. Most likely to happen during a period of falling interest rates and the amounts are small.
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Old 09-17-2023, 08:06 AM   #105
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What % is FireCalc's 5-year treasury interest rate based on? Or long-term bond %, I assume long-term means bond funds. We don't have bond funds anymore. I'd like to enter current interest rates but don't know how.
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Old 09-17-2023, 08:34 AM   #106
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What % is FireCalc's 5-year treasury interest rate based on? Or long-term bond %, I assume long-term means bond funds. We don't have bond funds anymore. I'd like to enter current interest rates but don't know how.
On the 5Yr US treasury note.
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Old 09-17-2023, 09:17 AM   #107
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What % is FireCalc's 5-year treasury interest rate based on? Or long-term bond %, I assume long-term means bond funds. We don't have bond funds anymore. I'd like to enter current interest rates but don't know how.

FireCalc's primary mode of operation that we talk about is as a historical calculator using data going back to 1871, presumably Shiller's data. It does not use current yields, current inflation, etc. It takes your starting balance and cash flows and runs it through what would have happened in the available historical data.

There are only a couple options for fixed income datasets available going back that far. For cash, there are short term government bonds and for bonds, there are long term government bonds (since 1953, Shiller's data had the 10 year). The 5 year bond rates are probably the average of the short term and 10 year. Prior to 1919, the 30 year would be based on some kind of correlation of modern 30 year bonds to the 10 year and short term.

If you want a static projection or Monte Carlo type of calculator, you can select to examine your whole portfolio that way, but I don't see how to mix and match, doing parts of your portfolio with historical data and parts using your guesses or Monte Carlo. Nor do I think you should want to do that as stock returns and bond returns have to co-exist at any one time.

The unknowability of future inflation means you cannot know what real return you will get on your current nominal bonds after correcting for future inflation. More importantly, if you hold a 5 year bond ladder, then 20% are maturing each year. You cannot know the future interest rates that you will be re-investing at. (The situation changes for TIPS, you can know the real yield if held to maturity and you could lock in up to 30 years of TIPS today. But that would consume most portfolios and leave little flexibility for lumpy expenses.)
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Old 09-17-2023, 10:35 AM   #108
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FireCalc's primary mode of operation that we talk about is as a historical calculator using data going back to 1871, presumably Shiller's data. It does not use current yields, current inflation, etc. It takes your starting balance and cash flows and runs it through what would have happened in the available historical data.

There are only a couple options for fixed income datasets available going back that far. For cash, there are short term government bonds and for bonds, there are long term government bonds (since 1953, Shiller's data had the 10 year). The 5 year bond rates are probably the average of the short term and 10 year. Prior to 1919, the 30 year would be based on some kind of correlation of modern 30 year bonds to the 10 year and short term.
The FIRECalc portfolio section clearly spells out 5Yr Treasury as one of the fixed income options.
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Still hanging on to my Bond Fund
Old 09-17-2023, 11:33 AM   #109
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Still hanging on to my Bond Fund

Then It follows -

If buying Treasuries or CDs of under 1 yr, buy them in Tax Deferred

If buying 1 yr or > CDs, can buy them in taxable or tax deferred.

Thanks
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Old 09-17-2023, 02:13 PM   #110
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Originally Posted by rkser View Post
I thought only individual Stocks or Stock Funds have the benefit of (> 1 yr) Long Term Cap Gain Tax rates of 15 - 20%,

Where as gains from Individual Bonds or Bond Funds or CDs in Taxable accounts are all charged at Ordinary Income rate.

I am not sure & want to learn, what do you think ?
I think you thought wrong.

If you sell a bond fund for more than you paid for the shares, you have a capital gain... if you sell for less then you have a capital loss. If you held the shares for less than 12 months it is short term and if you held the shares for more than a year then is it long term. Essentially the same as stocks.
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Old 09-17-2023, 02:14 PM   #111
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Then It follows -

If buying Treasuries or CDs of under 1 yr, buy them in Tax Deferred

If buying 1 yr or > CDs, can buy them in taxable or tax deferred.

Thanks
No.
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Old 09-17-2023, 03:45 PM   #112
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The FIRECalc portfolio section clearly spells out 5Yr Treasury as one of the fixed income options.
Rianne asked what the 5 year Treasury data was based on. FireCalc goes back to 1871 and there was no such thing as a 5 year Treasury bond back then. Legislation in 1921 allowed Certificates of Indebtedness for short term treasury borrowing. T-bill legislation passed in 1930 and replaced the Certificates of Indebtedness by 1934. Series A savings bonds were legislated and issued in 1935. I'm not enough of a historian to know exactly when the first the 5 year was issued, but a little Google searching shows the the first 5 year Treasury auctions were in 1962. Firecalc "data" prior to the Treasury issuing the actual thing is synthetic, estimated from other data.
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