Investing after the ladder?

[SJhawkins]

We built our ladder a month or two ago, the ladder will get us out to 2036 (age 67). The ladder is darn near 50/50 individual TIPs/Ibonds, feel well enough with this and the Ibonds should give us a little flexibility.

My SS at age 70 should cover all our non discretionary spending based on todays dollars/spending. Toss in my spouses SS (about half of mine) and a very small pension things look decent. One plus of living in flyover land, living cost is reasonable!

Need a plan on what to do going forward with any excess dollars that may appear (bond/stock dividends, market gains, etc.).

I was kicking around adding a 50/50 split of VIPSX (Vanguard TIPs fund, about 6 year duration) and VTAPX (Vanguard Short Term TIPs fund, about 2.5 year duration). Would use this to collect any excess dollars going forward and also to maintain our AA.

Including the ladder our AA looks like this today:
Short Term (Money Markets) 2.5%
TIPs ladder and Ibonds 15%
Intermediate Bond Fund 17.5%
Equities 65%

10 years from today our AA would transition over time to something like this:
Short Term (Money Markets) 2.5%
TIPs 6 year duration 7.5%
TIPs 2.5 year duration 7.5%
Intermediate Bond Fund 17.5%
Equities 65%

I do question if its worth the bother to have the 2 TIPs funds when one or the other would probably be good enough, what one I'm not sure, hence the 50/50 bet

For those of you that have transitioned out your ladder what did it look like for you?

The goal here is to update our plan going forward with the hope of keeping it simple.

As a side note, may buy into some 2037 and 2038 individual TIPs when they come up for auction.

Thanks all in advance.

 

[COcheesehead]

I never considered exiting a ladder. It’s self managing if we are unable to manage our finances meaning interest and maturing bonds flow to cash. That seems pretty simple.

 

[SJhawkins]

I never considered exiting a ladder. It’s self managing if we are unable to manage our finances meaning interest and maturing bonds flow to cash. That seems pretty simple.

Did you build you ladder out for your remaining years?

Mine only goes out 10 years so need to do something. I did include the ladder in my AA so that may would make a difference too compared to folks who don't.

Edit to add, I thinking more of a one way rebalance, if equites are on roll will pull some off, if down we wont invade the ladder.

 

[COcheesehead]

Did you build you ladder out for your remaining years?

Mine only goes out 10 years so need to do something. I did include the ladder in my AA so that may would make a difference too compared to folks who don't.

Edit to add, I thinking more of a one way rebalance, if equites are on roll will pull some off, if down we wont invade the ladder.

I have a perpetual 10 year ladder. At some point if my brain goes on the fritz I won’t add, but for now the ladder funds all our expenses, it’s safe, it’s boring, it just works. I have ours in a taxable account using muni bonds.
Equities and other investments are elsewhere, but the ladder is 35% of our holdings.

 

[Al18]

My asset allocation is 52% stocks/48% fixed income. My CD ladder goes out 4 years. I'm planning on renewing it year after year. I think you're overthinking things, if you're trying to build out a ladder for the rest of your life. Based on my 7 years of retirement, I'm selling a lot more stocks that CD's.

 

[SnowballCamper]

Why not just harvest the gains on equities when they're up? While my secured income isn't from a bond ladder, my equity position has almost doubled in about ten years. If the equities are up in a year, just harvest them for living expenses, and roll the expiring bond ladder rung into a new rung.

 

[tulak]

I never considered exiting a ladder. It’s self managing if we are unable to manage our finances meaning interest and maturing bonds flow to cash. That seems pretty simple.

Don’t you have to reinvest the maturing bond into a new bond in order for it be perpetual? What happens if you need the maturing bond for expenses?

 

[GravitySucks]

I have a 10 year mostly TIPS ladder. As long as rates and the equities market cooperate I’ll keep extending the ladder indefinitely.
When the Treasury auctions open I check my AA and sell to rebalance if equities are over 60% and buy the 5 or 10 years TIPS. I’ll worry about where to put the extra when they mature.
In your 50s maybe buy a 30 year TIPS.
I don’t have TIPS funds because I don’t see what they provide better than bonds or other bond funds.

 

[tulak]

I use individual TIPS, with 8 years in TIPS, a one year treasury, and a year in an MM fund. I plan to keep extending the TIPS ladder while equities are up. If equities are down, I’ll use maturing TIPS for income, but I don’t know how I’ll replenish the ladder when that happens. I’ll figure it out when I need to, since there will likely be other cash I can draw from (dividends, interest, existing cash balances).

 

[SJhawkins]

For those of you rolling your ladders would not a fund that matches the duration of your ladder get you to the same point? Within a reasonable amount anyway?

 

[SJhawkins]

I use individual TIPS, with 8 years in TIPS, a one year treasury, and a year in an MM fund. I plan to keep extending the TIPS ladder while equities are up. If equities are down, I’ll use maturing TIPS for income, but I don’t know how I’ll replenish the ladder when that happens. I’ll figure it out when I need to, since there will likely be other cash I can draw from (dividends, interest, existing cash balances).

This is my plan too, just trying to decide if extending the ladder or start rolling into TIPs fund makes it easier for my older self!

 

[tulak]

Funds are easier, but my personal preference is to avoid funds for fixed income. I might revisit that some day, but that wouldn’t be for another 10+ years, when I’m well beyond SORR.

 

[COcheesehead]

Don’t you have to reinvest the maturing bond into a new bond in order for it be perpetual? What happens if you need the maturing bond for expenses?

Yes you have to buy a new rung when a rung matures. We live off the interest alone, but can easily sell a bond or just not reinvest it if you need cash. Very liquid, very cashflow heavy. It just works for us.

 

[COcheesehead]

For those of you rolling your ladders would not a fund that matches the duration of your ladder get you to the same point? Within a reasonable amount anyway?

Funds and individual bonds behave differently. No par, management fee and redemption drag.

 

[SJhawkins]

Funds are easier, but my personal preference is to avoid funds for fixed income. I might revisit that some day, but that wouldn’t be for another 10+ years, when I’m well beyond SORR.

Think you and I think a tad same, bought the individual issues to get to where SORR wont hurt as much. When SS kicks in it will be much simpler!

 

[SJhawkins]

Funds and individual bonds behave differently. No par, management fee and redemption drag.

Totally agree, just wondering how much difference it bakes out in the end. My guess for most people on this forum its not going to matter much in the end.

 

[COcheesehead]

Totally agree, just wondering how much difference it bakes out in the end. My guess for most people on this forum its not going to matter much in the end.

2022 would like to have a word with you. People lost a lot in bond funds.
It’s hard to also lock in good coupons with funds. Look at rates as of late. Dropping, which reduces your income.

 

[tulak]

Think you and I think a tad same, bought the individual issues to get to where SORR wont hurt as much. When SS kicks in it will be much simpler!

I was originally going to add smaller steps to the ladder to account for SS, starting at 62, but I got more conservative and kept the same amount. SS will be a nice bonus.

 

[SJhawkins]

2022 would like to have a word with you. People lost a lot in bond funds.
It’s hard to also lock in good coupons with funds. Look at rates as of late. Dropping, which reduces your income.

Know all about 2022 with 35% of our fixed income in in BND in 2022, lost tens of thousands. It did teach me to shorten up on duration a bit as I got closer to ER, still have not sold yet.

I maybe totally out of bounce here, but if pulling out out 1/10th of a fund with a duration of 6-8 years for 10 years I think math wise its going to be good enough. Mentally its a different story, thats where I need some help from the group, while still working I really did not care.

 

[COcheesehead]

I think you’re seeing your mistakes and why what I am saying is true.

 

[SJhawkins]

I think you’re seeing your mistakes and why what I am saying is true.

Would not call it a mistake, I understood what duration means and what can happen.

 

[Abominable Manor]

Funds are easier, but my personal preference is to avoid funds for fixed income. I might revisit that some day, but that wouldn’t be for another 10+ years, when I’m well beyond SORR.

I too don’t like long-term bond funds, since I like to know what my “safe” investment will be worth at a certain date. My core ladder is based on CDs for that reason. But to supplement my CD ladder, I recently built a three year ladder with iShares’ target date TIPs ETFs. I was too lazy to buy the individual bonds. To me CDs are a lot easier to buy at Fidelity or Vanguard (YMMV), so I thought I’d try the ETFs. I realize I’m paying a fee for my laziness. They haven’t been around long enough to do an accurate back test, and as someone above said, they may not be head and shoulders above a short or limited term bond fund, but I thought they looked interesting. (https://www.etf.com/sections/features/case-blackrocks-new-defined-maturity-tips-etfs)

 

[tulak]

Individual bonds are easy to buy at Vanguard and Fidelity. That’s where I have all my TIPS, mostly bought at auction.

 

[Trailwalker]

I'm not extending my TIPS ladder, which is only designed to help with SORR risk. If the fixed rate goes above 2% again, I may change my mind.

 

[tulak]

I'm not extending my TIPS ladder, which is only designed to help with SORR risk. If the fixed rate goes above 2% again, I may change my mind.

What’s you plan post TIPS?

I will likely keep mine going, but I have thought about using it only for SORR.