lower MM yield = rethinking retirement income stream

[53anddone]

I am a bit younger than you but am living off an income stream of 4%. it has actually increased this year as I trade in CD's for other options.

My allocation:
53% Dividend paying blue chips (i.e KO, JPM, JNJ, DUK, MMM, etc). No one stock greater than 2.5%
15% preferred stocks (these went on sale big time in April). Again, mostly blue chip
banks and utilities.
15% municipal bonds. My target is 3% tax free with these.
17% CDs and Cash.

It takes work but you can get there. Most of this income is pretty well protected from market volatility.

 

[d.davis]

Smart doing Roth conversions in the 12% bracket. Hopefully you can convert it all before RMDs kick in. With sufficient cash flow, consider the trade off of taking SS earlier than full retirement age and investing it vs. delaying it and consuming current asset ballance.

 

[Bdroc]

Ally offers 1.3% on a no penalty CD which is similar to a MM fund.

Some dividend stocks are relatively safe. High rated utilities, Waste Management, J&J, etc.

I don't like corporate bonds. Those rated AA don't pay squat and you'll lose principal if rates rise.

 

[JJpop]

Approx 2yr since retirement. Began in "won game" mode, content with being mostly in MM earning 2.4%, and an annual yld with stock/BND holdings approx = annual expenses. Plan was to ride that indefinitely, while moving into a greater (but not high) proportion of stock when great opportunities presented.

Now, with MM 0.5% yld, my total yld is down by 60%, probably going lower, and could stay low many years (yes: who really knows!) If I knew MM ylds will return to 2.5% in 2yr then I'd ride this out, but a long low yld timeline seems likely. Taking SS would make up most of the lost yld, but plan to continue Roth conversions the next few years and prefer not taking SS for awhile.

Considering options -mainly SCHD, Schwab U.S. Dividend Equity ETF or VIG, Vanguard Dividend Appreciation ETF. Did add some stock during the mid-March sale, but the train left the station before lower limit orders hit. Now considering VTI/VIG, maybe at 50/50, instead of just VTI. Current ylds nearly equal (just <2%), but prefer the 2.5-3% range. Therefore including SCHD's 3.73% yld in the mix is tempting.

My simple analyses: companies in VIG are stronger to face C19-related challenges, and that the total market VTI has a larger ratio of companies that will be more impacted by C19. The growing VIG dividend outpacing inflation would also be nice.

The shortfall created by MM yields dropping thru the floor again isn't a disaster, but does tick me off that after years of "saving to win" now need more stock than preferred just to "chase" a measly 2.5-3% total yield!

Therefore, considering the Transgression of investing for dividends (focus on div growth). I'm not convinced it's a slam dunk that VTI total return will appreciably exceed VIG's in years ahead.

If another drop soon, may take the opportunity to move into some VIG/VTI (IMO, mkt is ahead of itself with "Happy Times Are Here Again"). Otherwise DCA into them.

No fast moves till think this over more. Aware that another big drop after buying these ETF's can erase many years of gains by the higher yld! Less stock is my Sleep At Night Formula, but have owned stocks many years and don't panic-bail ie: 2008/09, 2020. If decide I gotta add a larger proportion of stock in VIG/SCHD/VTI, then able to ride the Buy/Hold roller-coaster.

Any feedback appreciated!

Welcome to my world. The world where everything is manipulated to boost investors that are not using fixed income in retirement.

 

[NameTaken2]

Welcome to my world. The world where everything is manipulated to boost investors that are not using fixed income in retirement.

Ain't it the Truth-

It's a Mad, Mad, Mad, Mad World!

 

[daylatedollarshort]

I feel like we will still be fine with fixed income, even at current rates. We based our retirement plan on pretty low expectations - a zero real return. Inflation has been .3% for the last 12 months and our household expenses have gone down with not going out much and no travel. Plus we plan to refinance soon which will lower our mortgage payments.

Most of our TIPS and CDs bought in previous years are still well above zero real returns. The short term broker CDs I have been buying recently are all above .3%, the current inflation rate, so I feel like our retirement plan is still better than on target.

 

[JJpop]

I feel like we will still be fine with fixed income, even at current rates. We based our retirement plan on pretty low expectations - a zero real return. Inflation has been .3% for the last 12 months and our household expenses have gone down with not going out much and no travel. Plus we plan to refinance soon which will lower our mortgage payments.

Most of our TIPS and CDs bought in previous years are still well above zero real returns. The short term broker CDs I have been buying recently are all above .3%, the current inflation rate, so I feel like our retirement plan is still better than on target.

Yea we still have a lot of cd’s,some high quality individual bonds and Ibonds but am worried about replacing them. Time will tell.

 

[daylatedollarshort]

Yea we still have a lot of cd’s,some high quality individual bonds and Ibonds but am worried about replacing them. Time will tell.

At some point I suspect the news cycle will have deflation fears and TIPS rates will rebound. I made some money last recession on those fears and am hoping history will repeat itself. Otherwise all I need is to make a blended 0% real return to stay on plan and with inflation at .3% and my existing CD and TIPS ladder yields that is very achievable.

 

[tango2]

Vanguard has a mm earning 1.71%minus .11 cost. Just a thought.

 

[Lsbcal]

Vanguard has a mm earning 1.71%minus .11 cost. Just a thought.

What are the call letters?

Here is a list of funds and there is no MM (of the 8 shown) that has this kind of yield:
https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns

 

[aja8888]

What are the call letters?

Here is a list of funds and there is no MM (of the 8 shown) that has this kind of yield:
https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns

Maybe the tango2 read the 1 year return column by mistake?

 

[Shredder]

I guess after the bull run we've had I'm not too distressed with low rates now. Preserving the nest egg is now more important to me. (65 yes old, SS and a moderate pension) If safely means low returns for a while, so be it.

 

[Lsbcal]

I guess after the bull run we've had I'm not too distressed with low rates now. Preserving the nest egg is now more important to me. (65 yes old, SS and a moderate pension) If safely means low returns for a while, so be it.

The past 2 months have seen deflation in the headline CPI. That might take some of the sting out of very low rates.

 

[pb4uski]

Maybe the tango2 read the 1 year return column by mistake?

or was going from memory of the SEC yields a couple months ago. They have changed and not in a good way.