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

[mrfeh]

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.

And you'd be even better off if equities were in the mix.

 

[plank2505]

At the very least, not losing money, meaning FDIC insured or US government backed, meaning bank products or treasuries.

If you want a safe investment that won’t lose money, use two 0% interest FDIC-insured checking accounts. You will end up with exactly the same amount of money as you put in.

You are essentially guaranteed to lose purchasing power but you won’t lose money.

 

[SnowballCamper]

Maybe what I'm really asking is about what the rates will do, and what safe, long-term investment (if any) is best.

I presume by safe that you mean near zero volatility, then a TIPS ladder. It doesn't get 5%, but will match inflation. anything with more growth over the length of a retirement will have volatility.

 

[DrgLrd]

• 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?

50k guaranteed would be ideal, that's why I'm here asking about safe long-term fixed rate investments, but 40k works too.

• 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?

I guess it depends, but most of life has been in risk free investments, namely high yield bank accounts and CDs.

• Where in the world do you live that allows you to be unconcerned about inflation?

SE Asia, rent, electric, food, gas, medical, school, as long as it all costs less than what I earn, I'm happy, and because CoL is so low here, it generally is. No shack here either, big house, big TV, big fridge, it's all good, inflation is a non-issue. That being said, the cost to BUY a nice big house and lot is excessively high and for a variety of reasons, an option that smart expats would never choose.

 

[Aerides]

You are in your 50's and assume that your COL will remain low and not impacted by inflation for the next 40 years?

No one should take that bet. Safe from loss does not mean Safe for long-term investment, unless you were starting with about double your current NW.

 

[WhenIsItTime]

50k guaranteed would be ideal, that's why I'm here asking about safe long-term fixed rate investments, but 40k works too.



I guess it depends, but most of life has been in risk free investments, namely high yield bank accounts and CDs.



SE Asia, rent, electric, food, gas, medical, school, as long as it all costs less than what I earn, I'm happy, and because CoL is so low here, it generally is. No shack here either, big house, big TV, big fridge, it's all good, inflation is a non-issue. That being said, the cost to BUY a nice big house and lot is excessively high and for a variety of reasons, an option that smart expats would never choose.

Somebody with a tight budget on essentials typically is more at risk of inflation than a big spender as the big spender can throttle down. Many here like myself are risk adverse.

You are in your 50's and assume that your COL will remain low and not impacted by inflation for the next 40 years?

No one should take that bet. Safe from loss does not mean Safe for long-term investment, unless you were starting with about double your current NW.

3% inflation and costs will double every 23 years. OP may also be fine to die-with-zero, where $1M principle will help cover many years.

Firecalc says with starting with $1M, $40k spend, fixed 5% return, 3% inflation: 91 cycles. FIRECalc found that 0 cycles failed for a success rate of 100% (all cycles same since fixed return).

At 3.3% inflation for 30 years, it doesn't work.

 

[CRLLS]

Considering all of the hesitation on risk, and all of your other constraints, look into several annuities spread over a handful of different, high-rated companies with the $1,000,000. You will get an annual income of ~$65K USD for life, give or take. After tax?

I am not recommending that. I am usually not an annuity guy. But in this specific case, maybe. I would be concerned about inflation but that is me, not you. I haven't seen this mentioned yet, I would be more concerned about the changes in exchange rates affecting your lifestyle over time.

 

[dave65]

50k guaranteed would be ideal, that's why I'm here asking about safe long-term fixed rate investments, but 40k works too.



I guess it depends, but most of life has been in risk free investments, namely high yield bank accounts and CDs.



SE Asia, rent, electric, food, gas, medical, school, as long as it all costs less than what I earn, I'm happy, and because CoL is so low here, it generally is. No shack here either, big house, big TV, big fridge, it's all good, inflation is a non-issue. That being said, the cost to BUY a nice big house and lot is excessively high and for a variety of reasons, an option that smart expats would never choose.

What type of visa will allow you to live in this inflation free country for the next 20 or 30 years? Or maybe you have citizenship/permanent residence?

 

[Itnetpro]

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 retired at 52 my wife 55. We have a large nest egg and pull 5% per year. We maintain 3 years cash in the event our investments drop below the original investment amount. When the balance drops below like it did during the recent bond route, we take 0% pulling from the cash reserve instead. We don't need to adjust for inflation because we are now earning 2.8x our highest combined gross income.

We have no pension and wont collect SS until 70 so we are depending on our assets.

To consistently earn an average of at least 5% per year, you will need to take some risk. We are 49/51 Bonds/Blended Large Cap equities. You can achieve that mix with low cost index funds or combine two high quality, low cost, old, actively managed funds together like Wellington (VWENX)/Wellesley (VWINX) together for slightly more cost.

If you go the Actively managed funds route, they are not tax efficient. They are best for tax deferred accounts where, that's irrelevant. However, you can keep them in a taxable account, only if you decide to take the dividends. Wellesley as an example is paying a little over 4% a year or 1% every qtr.

Here is the Monte Carlo estimate for future returns on those funds. Pay special attention to the 50 percentile for the highest probability...

This is a 500,000 investment over 30 years taking 5% per year in todays money (Nominal=Current Dollars, Real=Inflation Adjusted Dollars).

https://www.portfoliovisualizer.com/monte-carlo-simulation?s=y&sl=2dZEkxNIDrEMTGFpOBaqOr

While it's true that SPIA's will pay you a bit above 5% for life and are insured up to 300k per insurer by a state fund. You give an insurance company a lump of money that you no longer have access to and won't be able to leave for your children after you are gone.

I don't recommend that route for most people. It may or may not be right for you. Just remember, they are insured up to 300k. If you want1 million, I recommend you purchase 4 250k SPIAs from 4 different A+ insurers.

Here is a USAA SPIA calculator...

https://www.usaa.com/annuities/immediate-annuity-calculator/

If you go the annuity route DONT buy anything except a SPIA. The rest are to complicated with high fees.

Good Luck,

John

 

[viking111]

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?

There is no place that will give you 5% guaranteed for life except perhaps an annuity. However, it won't adjust for inflation. I know you said you don't care about that but at 50 you may not care but 20 years from now you will. In my opinion in you situation a 40/60 portfolio would be a good option since you are looking for safety.

 

[Itnetpro]

There is no place that will give you 5% guaranteed for life except perhaps an annuity. However, it won't adjust for inflation. I know you said you don't care about that but at 50 you may not care but 20 years from now you will. In my opinion in you situation a 40/60 portfolio would be a good option since you are looking for safety.

The inflation part may or may not be true. It depends on the individual. The older we get, the less we travel and many expenses can actually fall. We have 6 times over the next 15 years where our cost will significantly drop and income will rise.

When I was 20, I bought a 27 “ tv for $800, today I can buy a 50” for under $300. Gas was more expensive and many other things are just less expensive now. Others, like housing and tuition certainly increased significantly. However, if the OP owns her home and there is no future tuition cost, they are irrelevant.

Autos? Many people downside to 1 car and keep it longer or even stop driving when they get older.

Vacations? That will slow down the older we get.

Health insurance? We are paying 30k a year on the marketplace. It will drop significantly when we both hit 65.

Every person is different, while it’s important to think carefully on future needs and wants, the notion that everyone will need to adjust for inflation is false.

I agree with your statement ‘The individual suggesting inflation won’t matter will need to take all things into consideration”. However, they may or may not be incorrect when they say, inflation won’t matter in their situation.

Only they know…

John

 

[Koolau]

We never know when inflation could erupt (again.) It just makes sense to me that at least some of one's stash would be invested in a way to (hopefully) cover the larger jumps in cost of living increases. Fixed (even at 5%) rate investments simply can't deal with high inflation.

Being insured by FDIC is great but it doesn't mean that you will keep up with inflation. A diversified portfolio of stocks, bonds and fixed rate investments has always been the best shot at keeping ahead of inflation (but no guarantee - as life offers only a couple of guarantees.)

 

[Itnetpro]

We never know when inflation could erupt (again.) It just makes sense to me that at least some of one's stash would be invested in a way to (hopefully) cover the larger jumps in cost of living increases. Fixed (even at 5%) rate investments simply can't deal with high inflation.

Being insured by FDIC is great but it doesn't mean that you will keep up with inflation. A diversified portfolio of stocks, bonds and fixed rate investments has always been the best shot at keeping ahead of inflation (but no guarantee - as life offers only a couple of guarantees.)

depends on the situation. I retired at 52. Taking 5% off my investments with a 3 year cash buffer, earning 2.8xs our combined gross income with that 5%. Do you really think someone like me with a large nest egg is concerned as much as someone depending on the investments and SS to maintain 80-100% of that pre retirement income with their nest egg?

In theory, I could sit in 3% cash investments and there is no way we will spend through our nest egg before retirement regardless what inflation does.

I’m not boasting, just explaining, everyone’s situation is different. One size does not fit all!

John

 

[Koolau]

depends on the situation. I retired at 52. Taking 5% off my investments with a 3 year cash buffer, earning 2.8xs our combined gross income with that 5%. Do you really think someone like me with a large nest egg is concerned as much as someone depending on the investments and SS to maintain 80-100% of that pre retirement income with their nest egg?

In theory, I could sit in 3% cash investments and there is no way we will spend through our nest egg before retirement regardless what inflation does.

I’m not boasting, just explaining, everyone’s situation is different. One size does not fit all!

John

I understand your situation. I'm in fairly similar situation. Having said that, I STILL want some inflation protection - even though it's not guaranteed through equities or bonds.

I suppose TIPS would be one way to at least begin to address the issue of inflation but I'm no expert on that subject and I hope to learn more so YMMV.

 

[Itnetpro]

I understand your situation. I'm in fairly similar situation. Having said that, I STILL want some inflation protection - even though it's not guaranteed through equities or bonds.

I suppose TIPS would be one way to at least begin to address the issue of inflation but I'm no expert on that subject and I hope to learn more so YMMV.

Hey, I don't disagree with that! Thats why I'm considering up to 20% of our portfolio in SPIAs! Without the inflation adjustment, I can earn over 6% even without the age factor! Looking at some of these other SPIAs with COLA adjustments. The starting amount in my case is not worth it.

I probably won't buy any and stick with my 50/50 + 3 year cash reserve but if I did, I would jump on the higher amount fixed SPIA and throw the payments into anything from TIPS to Munis, in our taxable account.

I suggest you look at the difference. If its 1% in your case, could you take that extra, invest it and essentially protect yourself from possible inflation giving yourself some control or would you take the extra and blow it at the casino?

Thats my take...

John

 

[aja8888]

I'm going on 82, and have enough to last much, much longer than me, no matter what things cost. My immediate concern is that my golf greens fees are going up 5% soon and golf balls are near $50 a dozen for Titleist ProV1's.

So my IRA is chock full of CD's and TBills and the other accounts are a mix of SCHB and some bank loan ETF's, all averaging about 5%. No debts, no wife, and one small dog.

When you get this old and have enough to make it, inflation is not on your mind that much. What's on your mind is more immediate and related to staying in good physical shape and busy doing what you want each day.

 

[Itnetpro]

I'm going on 82, and have enough to last much, much longer than me, no matter what things cost. My immediate concern is that my golf greens fees are going up 5% soon and golf balls are near $50 a dozen for Titleist ProV1's.

So my IRA is chock full of CD's and TBills and the other accounts are a mix of SCHB and some bank loan ETF's, all averaging about 5%. No debts, no wife, and one small dog.

When you get this old and have enough to make it, inflation is not on your mind that much. What's on your mind is more immediate and related to staying in good physical shape and busy doing what you want each day.

lol!

Good point, truth be told, when you have a large nest egg essentials like golf balls and green fees could easily be cut out.

When we retired two years ago, I originally budgeted for vacations around the world 3 months a year. I thought we would love traveling. Our first vacation was in Italy for a month. The first 2 weeks we loved it! By the 4th, it got old.

Decided we are homebodies. Did not even vacation last year (newborn, long story is part of retirement plan) and no plans this year yet (bought new home). However, one thing that got adjusted was vacations. At most, I think going forward, we may take up to two weeks a year not 3 months. Essentially cutting 10s of thousands out of our budget.

I wish everyone was that fortunate but for various different reasons, they are not. For them, inflation matters, it’s the difference between fresh beef, chicken or meals on wheels!

Others with bigger nest eggs. It’s more about where/if you vacation or if you buy that new car this year and if so a BMW or Subaru.

I respect those who put the work in early in life understanding compound interest. I learned about it in 1990 when I watched my grandparents who had no money or options in the end. It was sad to watch them pass in state run facilities but it taught me a powerful lesson.

I just wish my divorced parents had figured out compound interest. My father spent his life in CDs and low interest cash interest and my mother inherited from her sister

I hope nobody here ends up like they did…

John

 

[G-Man]

On the topic of the Wellesley (VWINX) fund, check out this video below. Here are some of the highlights from the video. It seems too good to be true.

Assumptions: $1M starting balance, 8% Reverse RMD withdrawal strategy (not sure what that means), from 1971-2023 (53 years):

Results:
1. Never ran out of money
2. Ending balance of $1.2M
3. Total withdrawal of $7M
4. 45 up years, 8 down years over the 53-year period
5. Worst return is in 2008 at -9.8%. The second worst return was in 2022 at -9.1%. Here are all down years:
- 1973: -3.5%
- 1974: -6.4%
- 1987: -1.9%
-1994: -4.4%
- 1999: -4.1%
- 2008: -9.8%
- 2018: -2,.6%
- 2022: -9.1%

If this data is accurate, this is amazing. So, if you have won the game, why would you not put your money in Wellesley (VWINX) and be done with it.

Would love to hear feedback.

FYI: I think if you picked any 30-year period from 1971-2023, you would end with positive ending balance.

 

[Koolau]

On the topic of the Wellesley (VWINX) fund, check out this video below. Here are some of the highlights from the video. It seems too good to be true.

Assumptions: $1M starting balance, 8% Reverse RMD withdrawal strategy (not sure what that means), from 1971-2023 (53 years):

Results:
1. Never ran out of money
2. Ending balance of $1.2M
3. Total withdrawal of $7M
4. 45 up years, 8 down years over the 53-year period
5. Worst return is in 2008 at -9.8%. The second worst return was in 2022 at -9.1%. Here are all down years:
- 1973: -3.5%
- 1974: -6.4%
- 1987: -1.9%
-1994: -4.4%
- 1999: -4.1%
- 2008: -9.8%
- 2018: -2,.6%
- 2022: -9.1%

If this data is accurate, this is amazing. So, if you have won the game, why would you not put your money in Wellesley (VWINX) and be done with it.

Would love to hear feedback.

FYI: I think if you picked any 30-year period from 1971-2023, you would end with positive ending balance.

All in Wellesley just might have been a strategy that would w*rk. I just like a lot more diversification.

 

[G-Man]

Does anyone know what a "reverse RMD" withdrawal strategy is? I am trying my best to determine how the "Income Need" for each year in the video is calculated starting at the 8:12 minute in the video.

This video has really peaked my interest.

 

[DrgLrd]

You are in your 50's and assume that your COL will remain low and not impacted by inflation for the next 40 years?

I haven't been impacted in 20 years, my safe investments have mostly covered my expenses. That's why I'm entirely focused on better safe investments. I could just keep riding 4 or 5 FDIC covered high yield / CD accounts, but treasuries have caught my eye.

I think if you picked any 30-year period from 1971-2023, you would end with positive ending balance.

Exactly.

I own VMFXX VUSXX and some others, total portfolio under $50,000 though.

 

[Closet_Gamer]

OP - I think a question that might help get everyone’s head around what you’re proposing is

“What is your annual spending, pre and post tax, today?”

If you’re spending $20K and trying to ensure access to $50K per year, that’s one thing. If you’re spending $50K today, everyone is throwing the warning flag because even very low inflation is a real issue over 40 years.

If you’re looking for FDIC quality, 5% nominal returns, I think the wisdom of the group is that 30 year treasuries are really the only thing in that category and even that isn’t quite 5% right now. The investment you’re looking for doesn’t currently exist.

It’s likely that you can construct a stock/bond portfolio that over time provides 5% per year but you will pay the price in volatility which will require you to be prepared to flex spending, potentially a lot. There are many strategies to deal with this but none of them are as simple/safe as what you’re looking for.

No free lunch in this situation. You’re either taking inflation risk (even if your instinct is to dismiss it) or you’re taking volatility risk.

 

[Trailwalker]

At present, you will do better in Treasuries than FDIC bank accounts. You have the opportunity to lock that up long-term. You will be choosing inflation risk as the fly in the ointment.

 

[marko]

SE Asia, rent, electric, food, gas, medical, school, as long as it all costs less than what I earn, I'm happy, and because CoL is so low here, it generally is. No shack here either, big house, big TV, big fridge, it's all good, inflation is a non-issue. That being said, the cost to BUY a nice big house and lot is excessively high and for a variety of reasons, an option that smart expats would never choose.

Not sure where in SE Asia, but the average inflation rate over 20 years for Cambodia has been 4.5% per year and 6% for Vietnam. Laos is 24% and Thailand is 3.7%. Malaysia is about 2.91% and 3% in the Philippines.

Don't confuse COL with inflation! Of course if you're only planning to stay there for a few years it doesn't matter but if you're planning on a permanent stay, inflation must be a consideration in your plan.

 

[DrgLrd]

If you’re looking for FDIC quality, 5% nominal returns, I think the wisdom of the group is that 30 year treasuries are really the only thing in that category and even that isn’t quite 5% right now.

Considering you can sell treasuries, why would anyone choose a CD if the rates are equivalent? I feel like I should buy a $100k 20 year treasury just to see how it works.

I probably spend around 3k to 4k per month.

inflation must be a consideration in your plan.

I'm here because I'm considering it, that's why I'm looking for the best risk-free investments.

I have one bank account that pays expenses, a month or two ago it dropped to $245k. Today it's back up to $249. That's been happening for as long as I can remember, that stability is what I want to keep, spending less than I earn.