Still hanging on to my Bond Fund

[COcheesehead]

Of course, you are in the minority in this respect. Fixed income dividends does not cover most people's expenses.

It can though, if you construct it correctly. There were a few posters in the golden age of fixed income thread who are 100% bonds.

 

[COcheesehead]

Cool. You are a lucky person. What do you do with the other 45%?

Reinvest it.

 

[dknighd]

Reinvest it.

Do you buy more bonds?

 

[pb4uski]

It is the same point I made.

If someone's entire fixed income portfolio is in a bond ladder, there are no ready funds for rebalancing.

And, there are not ready funds for spending.

Perhaps, but it is easy peasy to remedy. I keep a year of spending plus $25k emergency fund in an online savings account. It is the first rung of the ladder and adds liquidity. The online savings account currently yields 4.30%.

The rest of my fixed income ladder is in a portfolio that yields 5.15%.

With interest received and maturities I periodically replenish the online savings account. The liquidity by having the online savings account cost me less than 2 bps... no big deal.

 

[COcheesehead]

Do you buy more bonds?

Depends. Earlier in the year, I put some into equities.

 

[dknighd]

I think the secret is too have enough. I hope I did not miscalculate,

 

[pb4uski]

Of course, you are in the minority in this respect. Fixed income dividends does not cover most people's expenses.

Its not expenses or spending that fixed income dividends have to cover, it is the gap... the excess of spending over SS and pensions. In my case, my fixed income interest is 144% of my gap.

Think of it this way. If a fixed income portfolio is yielding 5% then the income is 125% of the 4% that would be withdrawn for the spending gap... so it is very doable these days.

 

[Montecfo]

Perhaps, but it is easy peasy to remedy. I keep a year of spending plus $25k emergency fund in an online savings account. It is the first rung of the ladder and adds liquidity. The online savings account currently yields 4.30%.

The rest of my fixed income ladder is in a portfolio that yields 5.15%.

With interest received and maturities I periodically replenish the online savings account. The liquidity by having the online savings account cost me less than 2 bps... no big deal.

And to my point about rebalancing?

 

[audreyh1]

And to my point about rebalancing?

A lot of people here don’t rebalance.

Particularly those living off interest from fixed income or dividends from equities.

 

[COcheesehead]

I think the secret is too have enough. I hope I did not miscalculate,

You need enough and you need it to be reliable. Having a bunch of callable or short duration bonds isn’t going to carry folks.
I am willing to give up some yield for reliable, longer term payouts.
I constructed the ladder to get to social security at 70 for both of us. So far it’s doing it’s job. We have no other income other than some “fun” money from part time side gigs. Equities are very long term and we may never actually touch them.

 

[pb4uski]

And to my point about rebalancing?

Not sure exactly what you think "rebalancing" is in a ladder, but the way I manage it is that as bonds mature to the degree that I don't need the proceeds for replenishing the liquidity first run it gets reinvested in any rungs that are underweight.

For example, I had a maturity last week and since my first rung is full enough and 2024 and 2025 maturities are overweight, I looked to reinvested the proceeds in 2026-2030 maturities that are underweight. I found some bonds available at good yields (6%+) that matured in 2026 and 2028 so I bought them and now those rungs are less underweight that they were before. (My current holdings are skewed to nearer term maturities than I want to be for the long run, but that is a-ok in an inverse yield curve environment).

If the ladder was all equal rungs then the proceeds would be used to buy a new rung at the top of the ladder... so for a 10 year ladder maturities would be used to buy a new 10 year bond.

 

[mrfeh]

Its not expenses or spending that fixed income dividends have to cover, it is the gap... the excess of spending over SS and pensions. In my case, my fixed income interest is 144% of my gap.

Think of it this way. If a fixed income portfolio is yielding 5% then the income is 125% of the 4% that would be withdrawn for the spending gap... so it is very doable these days.

Sure, but many folks (myself included) don't have a pension and aren't yet receiving SS.

 

[audreyh1]

Sure, but many folks (myself included) don't have a pension and aren't yet receiving SS.

Same here - we’re living completely off investments and aren’t yet drawing SS. No pension.

I’m most comfortable with our total return AA with rebalancing approach. At least it’s worked well enough for us for 24 years so far….

But people have different investment approaches. How much you retire with plus other income streams will certainly drive which approach someone prefers/can live with.

 

[pb4uski]

Sure, but many folks (myself included) don't have a pension and aren't yet receiving SS.

If we didn't have SS or a pension our annual interest would still cover our spending.

 

[mrfeh]

If we didn't have SS or a pension our annual interest would still cover our spending.

And you are in the minority in that respect.

 

[COcheesehead]

We’re also living completely off investments and aren’t yet drawing SS. No pension.

Us as well.

 

[pb4uski]

And you are in the minority in that respect.

At today's yields of 5%+ that would be true for anyone whose WR is 4%.

 

[audreyh1]

At today's yields of 5%+ that would be true for anyone whose WR is 4%.

That is 4% of original portfolio value after inflation adjustment. Not 4% nominal. Big difference.

 

[mrfeh]

At today's yields of 5%+ that would be true for anyone whose WR is 4%.

Very few (hopefully none) have their entire portfolio in fixed income. It also assumes today's yields will continue.

 

[Rianne]

I look for CDs that deliver monthly interest and treasuries that have coupons 4%+. And pay under par value. This drops into the settlement account providing income as we look for longer-term fixed income deals. Hopefully, these rates last into 2024.

 

[MichaelB]

At today's yields of 5%+ that would be true for anyone whose WR is 4%.

That is 4% of original portfolio value after inflation adjustment. Not 4% nominal. Big difference.

+1

With inflation at 3%, 10 years from now that 5% yield might not be enough to maintain the same standard of living.

 

[COcheesehead]

Very few (hopefully none) have their entire portfolio in fixed income. It also assumes today's yields will continue.

To my point up thread about reliable income. You can’t live on the short end of the curve if you want longer term income.

 

[pb4uski]

That is 4% of original portfolio value after inflation adjustment. Not 4% nominal. Big difference.

True, that is how the Trinity study measured withdrawal rates, but when we talk withdrawal rates here I doubt that very many use their retirement date portfolio as the denominator. Similarly, I doubt that they use their first retirement year spending adjusted for inflation to date.

I think that people tend to use their current withdrawals in relation to their current or beginning of year retirement portfoio. It is akin to the retire again approach.

According to FIRECalc a 5% yield in a 3% inflation environment (2% real rate of return) could support a 4.1% WR.

 

[pb4uski]

+1

With inflation at 3%, 10 years from now that 5% yield might not be enough to maintain the same standard of living.

FIRECalc indicates otherwise. If you go to the Portfolio tab and select the third radio button and select "A portfolio with consistent growth of 5.0%, and an inflation rate of 3.0%" and then solve for safe spending at 95% success on the Investigate tab it suggests a safe spending level that is a 4.1% WR for a 30 year time horizon.

 

[COcheesehead]

I use my starting portfolio value as just a milepost for comparison to today. I really don’t follow the 4% rule. I would be withdrawing funds I wouldn’t spend. I just try and maximize income within my investment goals.