If I'm happy with a safe 5% return long term, what are the best options?

DrgLrd

Recycles dryer sheets
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Retired, 50s, around 1 million cash, most in FDIC covered banks that I rely on for interest income. No pension and my SS will be minimal. As an expat my costs are low I'm not terribly worried about inflation.

As bank and CD rates creep down, I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade

50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.

In my situation, would a $500,000 20 or 30 year US bond be a good investment?
 
Retired, 50s, around 1 million cash, most in FDIC covered banks that I rely on for interest income. No pension and my SS will be minimal. As an expat my costs are low I'm not terribly worried about inflation.

As bank and CD rates creep down, I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade

50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.

In my situation, would a $500,000 20 or 30 year US bond be a good investment?
Why not some equities - especially in a mutual fund?
 
As an expat my costs are low I'm not terribly worried about inflation.


50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.
You potentially have 40 years ahead of you. What will that $50k buy in 10, 20 or 30 years? I'd be a lot more worried about inflation than market crashes.

I'm old enough to remember when just $20k was executive level salary. Today it's minimum wage.
 
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Fairly well rated corporate bonds pay 5+%. 30 year Treasuries are at 4.9% and not state income taxed.
 
$50k per year doesn't really happen of 1mil in investments, even at 5%, because taxes and inflation won't keep that very safe. Even at a modest 2% inflation, that means you really only have 48k with no taxes, after one year. 10 years in after taxes you'd be looking at closer to $25kspending in today's dollars.

Back in my planning days, most tools said to aim for about 7% growth each year, to accommodate a 4% wdr. That means equities, and quite a bit, since you need to plan for a 40+ year retirement.
 
Sorry, the investment choice is secondary, the headline is that you don't have nearly enough money to retire and spend $50K/year. A quick look at Firecalc.com says that holding only cash for, say, 35 years, would historically have failed 84% of the time!

A low investment risk strategy is to buy TIPS (inflation protected Treasury bonds). Long TIPS are returning about 2.5% after inflation, but the maximum duration is 30 years, so you need to hold some aside in sorter bond ladders to purchase future long bonds. If you don't consume any of your stash, that limits your spend to $25K (adjusted for inflation) each year. If you are willing to consume, say, 2/3 of your stash in 30 years, that only increases the spend to about $31,500/year and doesn't leave much for late life if you happen to live a long time. Aside from the limited spend and the need to keep buying more bonds in the future to cover longevity, this strategy is very rigid. You don't have a lot of freedom to cover short term lumpy expenses like an air conditioner, roof or car.

If you are willing to take market risk with, say a 50/50 stock/bond portfolio, you could historically have increased the (inflation adjusted) spend for 35 years to around $40K year with a 90% chance of success. (Markets may be different in the future of course).

So you either need to go back to work or drastically decrease your spending.

Secondarily, you should allocate some money to a widely diversified stock fund like Vanguard's Total Stock Market. But be realistic, stocks are only good if you can hold them without panic selling. Most portfolios should hold at least 25% stocks and common advice is probably closer to 50/50, but any amount will feel like too much when the market goes on a multi-year, gut wrenching, drop - the kind when day after day it seems like the world is going to end. Don't overestimate your ability to suddenly switch to be one of the ones that can hold on in the teeth of that kind of storm when you haven't done that so far.
 
Retired, 50s, around 1 million cash, most in FDIC covered banks that I rely on for interest income. No pension and my SS will be minimal. As an expat my costs are low I'm not terribly worried about inflation.

As bank and CD rates creep down, I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade

50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.

In my situation, would a $500,000 20 or 30 year US bond be a good investment?
If you could get a 5% coupon dropped into your settlement account for spending. And buy the treasury at a discount. The more I read, this may be possible at the end of 2025. Inflation is set to rise by most accounts. If your not in the market right now, you would be buying at the height. Not a good idea. Policy is not looking good for the markets, even index funds. You're in cash right now. Settlement accounts are paying 4.7%. We're in index funds, but have been for 15+ years. We could stand to lose. You may lose right off the bat if you invest in index funds now. I would ladder that cash in short term treasuries for the time being and see what pans out in 2025.
 
Sorry, the investment choice is secondary, the headline is that you don't have nearly enough money to retire and spend $50K/year. [...]

So you either need to go back to work or drastically decrease your spending.
+1
There is no investment (available to the retail public) that will return a guaranteed, inflation-adjusted 5% return over any time span. According to FIRECalc, even a somewhat "risky" 50/50 asset allocation can only support about $34k of annual, inflation-adjusted spending over a 40 year retirement (assuming no pension, SS, or other income). OP is not going to be able to safely spend $50k/year on a $1MM nest egg, regardless of asset allocation.
 
OP, do you have pension or SS coming later? If not, $50k/yr on cash/bonds is risky. $50k/yr is probably doable with a lot of equities if things work out well.
 
Retired, 50s, around 1 million cash, most in FDIC covered banks that I rely on for interest income. No pension and my SS will be minimal. As an expat my costs are low I'm not terribly worried about inflation.

As bank and CD rates creep down, I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade

50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.

In my situation, would a $500,000 20 or 30 year US bond be a good investment?
I'd do more research about inflation in your expat country. Is it truly nothing to worry about for all retirement years to come?
 
I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade

50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.

How do you feel about an income fund like JEPI, or a dividend fund like SCHD? I think those might provide relatively stable income while still being able to grow in good markets?
 
You potentially have 40 years ahead of you. What will that $50k buy in 10, 20 or 30 years?

Many good replies here but to address this one first...

20 years ago I was getting around 2%, and 10 years ago under 1%

So if I locked in 30 years ago at 5% I would have been up, way up.

If the idea is to lock in a rate before it drops, and don't lock in before it rises, the only question that seems to matter is what will the rates do in the future?

For example if over the next 30 years, if the rates will not average over 5%, then locking in now is a good move.

Or, if over the next 10 years the rates will increase over 5%, locking in now is not a good move.

Maybe what I'm really asking is about what the rates will do, and what safe, long-term investment (if any) is best.
 
Nobody can tell you what rates will do in the future. Why are you not concerned about inflation?


People make decisions based on rates all the time, I figured asking here would at least get knowledgeable answers.

Inflation is entirely irrelevant for two reason; 1) where I live the cost of living is relatively low and 2) My priority is safe investments.
 
Inflation is entirely irrelevant for two reason; 1) where I live the cost of living is relatively low and 2) My priority is safe investments.

How do you define safe investments?

For me, safe investments are the ones that are most likely to meet my goals. Over a long time period, having equities is safer than not having equities. If you have enough money, then I would think TIPS would be the safest, especially if you could build a TIPS ladder to match the rest of your life. A TIPS ladder to meet all essential spending and then maybe anywhere from 100/0 to 50/50 AA with the rest of the money.

I know you say inflation is irrelevant, but I don't know how that is true. At least with a TIPS ladder, it can pretty much remove inflation from the equation, especially if your personal inflation matches the inflation adjustment to the TIPS.

For me, a 75/25 AA is safest because I need to fund a very long retirement.
 
20 and 30-year US Treasuries are flirting with 5% as of today. No state tax
 
As an expat my costs are low I'm not terribly worried about inflation. [...] Inflation is entirely irrelevant for two reason; 1) where I live the cost of living is relatively low and 2) My priority is safe investments.
[...]
As bank and CD rates creep down, I'm looking at long term solutions, 10 year CDs through banks, or 20 or 30 year treasury bonds purchased via etrade
[...]
50k per year guaranteed for me would be acceptable, without worrying about interest rates, market crashes, etc.
OP, you seem to be a little bit "all over the map" here. Can you answer these three questions for us, to clear up the confusion:
  • Do you need $50k/year of income, in perpetuity, in order to support your desired standard of living? IOW, would something like $40k/year absolutely not work for you?
  • Are you willing to accept some level of risk in your asset allocation to achieve that $50k/year, or is having a 100% fixed income AA a non-negotiable requirement for you?
  • Where in the world do you live that allows you to be unconcerned about inflation?
 
I've been pondering the cavalier attitude toward inflation. I suppose if one lives in an ultra-low cost of living country, it doesn't matter whether your rice and beans cost the equivalent of five US cents or rises to fifty--it will still be well within your means as an expat with a million USD in the bank. There are places where one could live like a king on 50k a year, and still live like a prince on 25k should inflation halve one's spending power.
 
Pssst: Wellesley (VWINX)
There is a bunch to unpack, but VWINX is IMO a good minimum stock exposure proxy. You get very good professional management of the bond heavy portfolio and a reasonable equity hedge against inflation. I personally would want a bit more equities and definitely wouldn't concentrate 100% in just long term treasuries. Wellesley is a simple default for a long term, risk adverse portfolio IMO. You can do very little better and a whole lot worse.

And targeting 5% isn't going to work unless you are assuming the inflation risk with no inflation adjustment.
If you are willing to assume the inflation risk for the entire term and have no legacy concerns, a Single Premium Immediate Annuity (SPIA) will payout about 6% starting today for a 55yo male. So there is that. You could put $800K in a SPIA for your initial $50K income and invest $200K in VTI.
 
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