Treasury in tax deferred (IRA)

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is50xenough
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Treasury in tax deferred (IRA)

Post by is50xenough »

This seems like it has only been tangentially addressed in several posts and want to make sure I'm not crazy. Seems like there are Treasury Notes on brokerage sites that would pay 4.3% thru 2025. Seems like a solid yield since we seem to be getting closer to end of Fed rate hikes and the goal is supposedly 4-4.5% if I have that correctly.

Wouldn't this fulfill idea of fixed income in IRA with a very descent yield? I would think this is a great yield if there are Treasuries available for longer duration?

If one targets 4% yield, can buy Treasuries that get that until 2030.

I have always specifically thought of 4% growth as a nice target if withdrawal rate was at that or less (especially since talking the fixed income portion of AA)

Thoughts??
Topic Author
is50xenough
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Re: Treasury in tax deferred (IRA)

Post by is50xenough »

Did I phrase something weird? Why no responses?
Count If
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Re: Treasury in tax deferred (IRA)

Post by Count If »

Hello 50X. Yes T-notes/T-bills rates are now around 4% and to me this represents an opportunity to do better than bank or money market rates while retaining principal. You are right this also appears to match the 4% rule of thumb we all have heard about. Have bought some zero coupon T-bills lately in the tIRA in the 3-4% range, looking to buy some 2-5 year notes, maybe some regular paying agency/CD types as well. Finding I like this approach much better than bond funds that feature declining principal as interest rates rise.
billyt
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Re: Treasury in tax deferred (IRA)

Post by billyt »

Not quite sure exactly what you are asking. Yes, I think a yield above 4% good. What are you proposing, a Treasury ladder? What is your present portfolio?
placeholder
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Re: Treasury in tax deferred (IRA)

Post by placeholder »

You should be specific with what your questions are to get the best answers.
Tom_T
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Re: Treasury in tax deferred (IRA)

Post by Tom_T »

Count If wrote: Sun Oct 02, 2022 3:39 pm You are right this also appears to match the 4% rule of thumb we all have heard about.
There are a number of threads about that. I wouldn't necessarily count on 4% being doable. If you have time, go through this thread:

viewtopic.php?t=387165&hilit=4%25
Count If
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Re: Treasury in tax deferred (IRA)

Post by Count If »

Yes have read much of the thread, a lot of theory on optimizing, what's the best SWR to avoid going bust etc. I like the idea of holding treasury/agency bonds directly under current conditions.
Living Free
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Re: Treasury in tax deferred (IRA)

Post by Living Free »

If you hold to maturity then treasury bills/notes should return principal plus the interest, though there is some interest rate risk if rates rise and you need to sell before the full term and also opportunity cost if rates rise further and you’re holding lower yielding treasuries (and would have to sell at a loss to buy the newer issues higher yielding treasuries). With a bond fund I suppose these changes are more apparent with the fluctuations of the value of the fund, but it still occurs even if you can’t see it (because you’re holding the treasuries directly yourself and not dangling them out onto the secondary market every day)
dbr
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Re: Treasury in tax deferred (IRA)

Post by dbr »

is50xenough wrote: Sat Oct 01, 2022 7:14 pm
I have always specifically thought of 4% growth as a nice target if withdrawal rate was at that or less (especially since talking the fixed income portion of AA)

Thoughts??
That calculation doesn't work exactly that way. One difference is that the standard withdrawal rate study assumes withdrawals are increased by inflation every year. Your identification would work if the 4% were real return rather than nominal. In the other direction a standard withdrawal rate study assumes the portfolio might be drawn down to zero over some designated time. This means the investments don't have to return anything or can even lose money as long as the spending isn't too high nor the losses too great.

An illustration of the mechanics with interesting graphics is here: https://engaging-data.com/visualizing-4-rule/

In any case nominal interest rates, real interest rates, and inflation are all highly variable over time. If a person wants a predictable income stream over time the ideal instrument to get that predictability is an inflation indexed life annuity, not an item available outside Social Security. Either a fixed SPIA or an SPIA with a fixed COLA gets part way there pending inflation and a ladder of long TIPS gets part way there but does have longevity risk. That does not mean that holding those kinds of investments produces a more or less lucrative retirement than just holding stocks and bonds.
miket29
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Re: Treasury in tax deferred (IRA)

Post by miket29 »

is50xenough wrote: Sat Oct 01, 2022 7:14 pm Seems like there are Treasury Notes on brokerage sites that would pay 4.3% thru 2025. Seems like a solid yield since we seem to be getting closer to end of Fed rate hikes and the goal is supposedly 4-4.5% if I have that correctly. If one targets 4% yield, can buy Treasuries that get that until 203
Bearing this in mind this from Investopedia, your actual return may vary
Calculating the yield to maturity can be a complicated process, and it assumes all coupon or interest payments can be reinvested at the same rate of return as the bond.
Topic Author
is50xenough
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Re: Treasury in tax deferred (IRA)

Post by is50xenough »

Thanks for all replies. My question was given over 4% yields on government bonds/notes, isn't this a good thing to buy in tax deferred account? Meaning the fixed income portion of AA in the correct location.

The comments on SWR and the fact that the 4% is not real yield are interesting and appreciated also.

Decided to take the plunge and bought some with maturities 2024-2029.

Seems like a nice yield with essentially no risk to provide some underpinning to rest of portfolio.
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