Retirement Income, Bond ladders, etc.

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Nirguna
Posts: 15
Joined: Mon Jan 14, 2008 4:27 pm

Retirement Income, Bond ladders, etc.

Post by Nirguna »

Info
Age : 55
Cash : 2.4 M
Company Stock : 1.6 M - Taxable on gains
401K : 1.2 M Pre Tax
Expected Social Security: 3.8K/ Month @ 70 years
House Paid off : 1.5 M
Salary : 300K/year current and I expect this to stay that way
Expected Expenses in retirement: 100K - 150K/year

I will be getting out of the company stock soon I realize it is good so far but it is risky given my age and time left.
I have zero debt, house paid off.

Goal: Retire as early as possible. However, since I like what I do, keep going is an option.

Questions:
1. If I decide to retire early (like tomorrow):
How do I invest the cash that I have so I can get reliable retirement income? Would Vanguard Bond Ladders help?
In general, what are the general patterns for investing a sum of money for retirement income?
a) For the reasons of stability and peace of mind, and flying over the uncertainties, I can probably buy the Treasury Direct 30 year bond with 4M and it will give me 80K per year - which is not luxury living, but boy that would so freeing.
b) I can buy bond ladders but I am not sure how to think about them - in terms of stability

2. I can work for more years, and retire 5 years from now.
What is a practical option to preserve the capital (4M) and retire in 5 years?
Again, the question #1 comes back after 5 years.

I am a bit concerned because I realize I am in a good position financially, and am trying to land this plane smoothly.
Appreciate your expertise.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Retirement Income, Bond ladders, etc.

Post by dbr »

Nirguna wrote: Tue Sep 21, 2021 3:29 pm
what are the general patterns for investing a sum of money for retirement income?
There are a variety of retirement models of which www.firecalc.com is probably as easy to use and as helpful as any. It can show you the outcome of various combinations of retirement spending related to portfolio allocation, income streams such as annuities and social security, etc. The mechanics of that model are effectively derived from the original retirement research of Bengen and the Trinity Study and was programmed by some people over at the Early Retirement Forum. The acronym means Financial Independence Early Retirement.

If by bond ladder you mean setting up a long term ladder such as a 30 year ladder of TIPS, spending the maturing rung each year (with complications regarding the existing TIPS), then that income could be put in the FireCalc model and the cost of the ladder removed from the portfolio.

If you just mean a rolling bond ladder, that is not effectively different from a bond fund.

I would not buy a 30 year Treasury but 30 year TIPS might make sense. Otherwise inflation will be a serious problem. The real return on 30 year TIPS is -.33%, so this is not a very good time to rely on bonds for long term income, nor to establish a 30 year ladder.

Unfortunately low interest rates also make fixed annuities expensive. The best deal going is possibly to delay Social Security to age 70.
ILResident
Posts: 21
Joined: Thu Apr 29, 2021 9:22 am

Re: Retirement Income, Bond ladders, etc.

Post by ILResident »

I gather you're looking to secure an income stream to accommodate the $100K-$150K in annual expenses. If you have approximately $4M in net assets to invest, I think it should be relatively easy to get a 4% annual income stream to cover such expenses.

Check out the following article, https://www.kiplinger.com/investing/bon ... ond-ladder ,which may be helpful to construct a bond ladder using ETFs, i.e. Bulletshares or iBonds . Another option to consider is incorporating a dividend ETF https://www.forbes.com/advisor/investin ... idend-etf/ in conjunction with a bond ladder for diversification or independently.

Good luck!
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