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

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.
Good luck with that. How did it do during the recent inflation or was that not an issue where you live?
 
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.



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.
Pretty frugal for a Drg Lrd.
 
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

10 year Treasuries are at 4.5%, not 5%. You said you were looking for 5% to generate $50K off of $1M. Particularly over the long haul, that’s a big difference between reality and goal.

Good to know your spending range. $3-4k/mo, so notionally $36-48k/year.

But you said “Probably”. You’re trying to shave this pretty close, particularly with the inflation assumption. I’d suggest you build a very specific budget and track it in detail for a year.

And in your geography, what are the taxes on the money you generate? Will it leave enough to cover spending post taxes?

Re a buying a treasury to see how it works, I did that too. But I’d suggest a small, short term treasury rather than committing 10% of your stash to a 20 year bond. It’s a big part of your money and a 20 year bond will be much more sensitive to interest rate moves, good or bad.

Perhaps buy $5K treasury maturing in 1 year. You’d get to see the whole lifecycle (buy thru repayment) and it’s a very safe amount of money.

(Btw, are you knowledgeable about how bonds perform under interest rate changes? Both price moving opposite of yield and the impact of duration? If not, I’d suggest you do some reading.)
 
what are the taxes on the money you generate?

No foreign or state taxes, Federal I haven't paid taxes in years thanks to the FEIE, ie expat exclusion.

Re a buying a treasury to see how it works, I did that too. But I’d suggest a small, short term treasury rather than committing 10% of your stash to a 20 year bond. It’s a big part of your money and a 20 year bond will be much more sensitive to interest rate moves, good or bad. Perhaps buy $5K treasury maturing in 1 year. You’d get to see the whole lifecycle (buy thru repayment) and it’s a very safe amount of money.

T-bill? I believe the payments on a bond are every 6 months, not sure how that works with the T-bill though

(Btw, are you knowledgeable about how bonds perform under interest rate changes? Both price moving opposite of yield and the impact of duration? If not, I’d suggest you do some reading.)

Thanks. I've read some but I always end up with knowledge without any experience on what to do with it. My experience is in CDs MYGAs and some annuities which are very simple in that they are all fixed, thus revolve entirely around timing. Buy high before rates dip, don't buy low before rates rise.

I'm getting 5% in some CDs and around 4% in my banks, so annually that's more than enough. If it never drops much, I don't really need to change anything. If it does drop in banks and CDs, I know it will too late to lock into a high rate CD or annuity, and I believe the same with treasuries.

So all this means if I expect rates to drop, the time to buy is now.
 
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.
Why would you do that when FDIC insured CDs are paying ~ 4%+?
 
T-bills are zero (no) coupon bonds. You buy at a discount and they pay the full face value at maturity. The difference is the interest. T-bills range from 4 weeks to 52 weeks. Nothing longer.
 
T-bills are zero (no) coupon bonds. You buy at a discount and they pay the full face value at maturity. The difference is the interest. T-bills range from 4 weeks to 52 weeks. Nothing longer.

Thanks, when comparing T-bills to CDs, do you just go with the higher interest rate? Or are there other factors that make a difference?
 
Thanks, when comparing T-bills to CDs, do you just go with the higher interest rate? Or are there other factors that make a difference?
Just use interest rates. Some people prefer Treasuries because they are exempt from state taxes.
 
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?
Let me get this straight. You're talking about a $1,000,000 portfolio from which you want to withdraw 5% annually, adjusted for inflation. Is that correct?

You would be better served to add 20-30% in equities over time, like VTI, to the mix over the next 2-4 years to improve your chances of portfolio longevity. I would strongly consider reducing your anticipated income to between 3-4% tops. PS - I am not a big fan of stock/bond blended funds as their expense ratios are higher than straight equity funds.

But, hey - what do I know? I've been out of the workforce for over a dozen years and have had minimal equity exposure without regrets. I sleep well at night and my annual withdrawal is under 2%.
 
Hi,

FEIE stands for Foreign EARNED Income Exclusion. Investment income, passive income, does not qualify for this. If you have been taking this as a deduction on your federal taxes or just not filing, it will probably catch up with you. I don’t even know how you could get through the form without understanding this? That makes me think you are just not filing?

I hope you have some money put aside to pay that back.

If you get a job in your foreign country and get paid for that work, you won’t have to pay taxes to the US up to the limit they offer each year. ($126K a year now?)
 
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.
$50,000 is the equivalent of $21,600 after 30 yrs of 3% inflation.
 
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Everyone would be right here who advocates for investing in index funds long term if we were in say the year 1995. However, the market is way overvalued and due for a long correction. Inflation could be here long term or it might fade away to more normal levels.

People in Japan that invested long term with dollar cost averaging starting in 1985 all the way through 1995 must have felt quite sad. Hey I'm no expert by a long shot so I may be way off base and entirely wrong.
 
You would be better served to add 20-30% in equities over time, like VTI, to the mix over the next 2-4 years to improve your chances of portfolio longevity.

I'm doing that now except its more like 5%, I'm too risk averse because

the market is way overvalued and due for a long correction.

I was following closely with all the NVDA Pelosi hype, I knew when the Feds would raise and lower rates because of the accounts I followed. It's just mind-numbing though, I can't think of anything I want to spend time less on than finances, thats why a 30 year thing is attractive to me. Also doing nothing and just keeping bank accounts is equally appealing. I just don't want another experience like desperately buying a CD at 2% from a few years ago.

FEIE stands for Foreign EARNED Income Exclusion. Investment income, passive income, does not qualify for this.

I still didn't pay any taxes though because of my deductions.

Let me know if anyone can find a safe 5% return...........

I'm getting 5% on a CD. Also treasury bonds are around 5%.
 
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.
 
On $100K at age 62, with a SPIA you can get about $600/month for the rest of your life with a payout rate of 7.31%. Look on immediateannuities.com
 
We have 4 x 5y MYGAs averaging out at 5.46%, 2 large'ish IRA CDs both at 5.25 maturing next year and 2 SchWab CDs both at 5.25% one maturing soon and the other in 2026. We have ~$50k in MM and Checking for our emergency expenses. That translates to 62% post tax and 38% pre Tax moneys. Our combined SS and pensions from all sources covers all our expenses and then some. We are 71 and 66 respectively. We are happy with that for now. We have been in fixed income of some sort or another for about 20 years and are doing just fine.
 
I'm too risk averse because
My neighbor became risk averse after 9-11 happened, he took his $200k out of the market and has it in cash equivalents paying around 1%. He never got back in. His $200k has not even grown to $240k. If he had it in VTSAX for those 23 years he would have $1,244,000. And that does not include reinvesting dividends! Life changing money he missed out on.
 
My neighbor became risk averse after 9-11 happened, he took his $200k out of the market and has it in cash equivalents paying around 1%. He never got back in. His $200k has not even grown to $240k. If he had it in VTSAX for those 23 years he would have $1,244,000. And that does not include reinvesting dividends! Life changing money he missed out on.
+1

My "smarter than you" neighbor proudly announced that she "sold everything" on the 1st Friday in March. We had all gone to dinner and she toasted herself. That next Monday was the bottom and....... ( she got toasted alright)
 
The safest investments is TIPS. Today they pay close to 2% *on top of inflation*.
If you go to tipsladder.com, you can build a 30 year ladder that will yield $50K a year for a out 30 years for just over a million. This is a guarantee as it gets, but if you spend the $50K every year, you are left with zero when the ladder expires after 30 years.
$45K a year will be under $1M
 
How did it do during the recent inflation or was that not an issue where you live?

I retired and moved when I hit 1 mil, that was nearly 20 years ago and I've still never dipped below 1 mil.

That's why I'm less concerned about inflation and more concerned about actual emergencies like banks collapsing or the dollar crashing.
 
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.
Do you know the historic average inflation where you plan to live for the reminder of your life? Your withdrawal rate CAN NOT be larger than real rate of return. Real rate of return = nominal rate of return - inflation. To add fuel to fire: typically nominal rate of return of any instrument (even CD) is not guaranteed for life of your retirement i.e. it may change over the years. So your SWR needs to be even smaller than WR calculated in the step above. The rule of thumb SWR of 4% is realistic with 50% stock exposure. If you have no stock exposure then you may need to drop your SWR to 1-2% range if not negative! Because most of the "safe" investments do not beat inflation over long term which means you are actually loosing money in real dollars with so called "safe" investments.

If you continue with your plan then expect to take deep cuts in standard of living down the road. You may not feel the pinch initially but after 10-20 years, it would be VERY noticeable.

There is a lot of reading material out there about safe withdrawal rate and what it means. FireCalc is your friend.
 
I retired and moved when I hit 1 mil, that was nearly 20 years ago and I've still never dipped below 1 mil.
If your assertion is correct then your spending remained exactly equal to the nominal returns earned. Couple of questions:
* Can you compare prices of some of your items you regularly buy from 20 years ago vs today? Are they exactly same? If the prices has gone up then your $1M today is not same as $1M from 20 years ago. Keyword: Time value of money
* Do you expect to earn the same nominal rate of return in the future?

If answer to both these questions are yes then you may be OK but I highly doubt either of the answers to be yes.
 
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