[Maximizing Returns on Bank Savings] - renamed from “Building an income Stream with Cash”

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AnnetteLouisan
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[Maximizing Returns on Bank Savings] - renamed from “Building an income Stream with Cash”

Post by AnnetteLouisan »

The thread about the person with $2M in cash got me thinking. Someone commented that that could be turned into an income stream of $80k a year in a 4 percent note.

Well, I still have $600k in savings accounts yielding negative and it occurred to me that adding a $20k a year income stream to the approximately 35k pension and 35k SS expectation I have would result in $90k a year before taxes, which really isn’t bad at all (and exceeds my highest retirement expense estimate of $75k/yr).

I could put $500k in at 4 percent, keep $100k for emergencies, and keep working at least until early retirement in a year and a half. This doesn’t even count my 401k and IRA investments or my I bonds. I would of course keep investing around half of my net salary in my 401k, IRA and taxable, mostly in equities, but at least my savings would lose less to inflation and compound. Plus so would still retain the 500k principal for future use.

Does it make sense to put $500k in a two year note today, or is there a longer term instrument with a nice rate like that that you are aware of? Should I wait a month or two until rates go up even further?

Age: 56
State: NY
Tax bracket: 35 fedl, around 9 state and local
Nw: $1.95
Portfolio: $1.35 (20/80)
No debt
Pension and ss are cola’d
Income $310k (gross)
Expenses$40k
Total taxes $80k


Thanks
Last edited by AnnetteLouisan on Mon Dec 05, 2022 7:26 pm, edited 8 times in total.
z3r0c00l
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Re: Building an income stream with Cash

Post by z3r0c00l »

Right now you are losing ~4% to inflation each year and that $20,000 a year loses its purchasing power rapidly. $20,000 today is only worth what $16,000 was in 2016. Cash was a better deal in the 20-teens when it was paying -1 or -2% after inflation, than it is today when it is paying -4% in a bond or -6% in a bank account.

I personally agree that your best move is to buy a 2 year treasury and lock in the good rate, close alternative is a longer term CD like a 2-4 year. Reasonable alternative is a 2-3 year duration bond fund. The upshot is you are in a great situation but this cash is going to be your worst performing asset most likely. Accepting that from the start avoids the agonizing over what to do, all of the above options are reasonably comparable and agnostic as to the future interest rate changes, which are unknowable.
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1moreyr
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Re: Building an income stream with Cash

Post by 1moreyr »

Hello Annette,
I love your posts and enjoy your insight. I am 59 and retired officially earlier this year.
Instead of throwing it all in at once, you could ladder in a few different directions. That way you get the best you can and minimize regret overall.by using smaller blocks, They will have varying maturity dates and a tenth of a point either way won't matter much.

I am in the process of building a liability matching ladder to get me from 59 to SS 63 or later. I have about $500K in cash

I determined how much I needed every year through 2027 and laying this money out in that way as best as the rates deem possible

I have

1. $120 K in Ibonds. These are for years 2025 and 2026. The 5 year penalty phase will be over by then but they also serve as emergency funds if I need sooner.

2. $275K in 12 lots of Treasury bills - These are all short term (3-12 month bills). The will be going into longer duration for years 2023-2024 as they mature.
3. I have $50K in brokered CDs for 2024 and 2025. It was also a small amount of the total and I don't regret these.

4. I also have cash in Ally savings at 2.25%.

Overall, I figured out the forward 12 months annualized interest about 4 months ago as a sanity check of all of this combined. I was at 4.4% yield (+/-)

I will be moving longer term treasuries in the 2-4 year range as they mature.

You also save 9% on the NY state interest tax which is wonderful and could be considered part of your yield as well. (I did not consider tax savings in my yield above)

This has helped me to sleep well at night as the rest of the portfolio craters.

tell us what you decide.
Last edited by 1moreyr on Sun Oct 09, 2022 9:46 am, edited 2 times in total.
sycamore
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Re: Building an income stream with Cash

Post by sycamore »

AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am Does it make sense to put $500k in a two year note today, or is there a longer term instrument with a nice rate like that that you are aware of? Should I wait a month or two until rates go up even further?
...
Tax bracket: 35 fedl, around 9 state and local
...
At 35% fed tax rate, consider a short term muni bond fund. I haven't checked their SEC yields lately but maybe you could beat that 4% on an after tax basis.

In any case you can and should definitely do something to beat the savings account return. 🙂
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Re: Building an income stream with Cash

Post by jebmke »

sycamore wrote: Sun Oct 09, 2022 8:23 am
AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am Does it make sense to put $500k in a two year note today, or is there a longer term instrument with a nice rate like that that you are aware of? Should I wait a month or two until rates go up even further?
...
Tax bracket: 35 fedl, around 9 state and local
...
At 35% fed tax rate, consider a short term muni bond fund. I haven't checked their SEC yields lately but maybe you could beat that 4% on an after tax basis.

In any case you can and should definitely do something to beat the savings account return. 🙂
My state tax rate is just a bit below the 9%. When I look at Treasuries vs. Munis of the same duration, the BE federal tax rate tends to jiggle around 22%. One might want to add a bit to account for liquidity and default risk but anything significantly above mid 20s would seem to be an easy call for munis. Munis also get around NIIT.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

jebmke wrote: Sun Oct 09, 2022 8:28 am
sycamore wrote: Sun Oct 09, 2022 8:23 am
AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am Does it make sense to put $500k in a two year note today, or is there a longer term instrument with a nice rate like that that you are aware of? Should I wait a month or two until rates go up even further?
...
Tax bracket: 35 fedl, around 9 state and local
...
At 35% fed tax rate, consider a short term muni bond fund. I haven't checked their SEC yields lately but maybe you could beat that 4% on an after tax basis.

In any case you can and should definitely do something to beat the savings account return. 🙂
My state tax rate is just a bit below the 9%. When I look at Treasuries vs. Munis of the same duration, the BE federal tax rate tends to jiggle around 22%. One might want to add a bit to account for liquidity and default risk but anything significantly above mid 20s would seem to be an easy call for munis. Munis also get around NIIT.
Thank you! I see Fidelity has a Limited Term Municipal Income Fund and a New York Municipal Income Fund, both of which are down over 5 percent for the year. Would one of these be good? Is buying individual munis better? I’m a bit concerned about municipal bankruptcies given the parallels between today and the 70s, including business bankruptcies and flights from offices in urban cores. Rural NY isn’t much better. Also I believe muni bond disclosure regulation is weaker than equities since it’s MSRB and the states vs the SEC, and pricing (fee) transparency is known to be horrid on these instruments.

I guess I could put 50k in a 52 week t-bill
50k in a two year t note
50k in a muni bond fund
50k in an 18 month CD
50k in a 26 week t bill

Ugh that’s just 250… 😩

Maybe 75k in each. That would be 375

Ok how’s this?
100k HYSA
75k 8 week t bill on auto roll
75k in a 26 week t bill, auto roll
75k in a 52 week t bill on auto roll
75k in a two year note
50k in a muni bond fund

That’s 450.

Another 50 in the S&P

That’s 500 and the rest would be just in banks for whatever. I will max my I bonds in January.

Does this kind of staggering make sense for someone with a job currently? Are those maturities too short or does auto roll make up for it and let me capture near term rate increases?
Last edited by AnnetteLouisan on Sun Oct 09, 2022 9:06 am, edited 5 times in total.
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JoMoney
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Re: Building an income stream with Cash

Post by JoMoney »

If it's a $20,000 "income stream" you're after, and you like the current interest rates available, I'm seeing SPIA quotes on Blueprintincome.com for a 60yo woman (NY) to be able to buy that lifetime income stream (no early death refund) for $313,730.18 (A++ rated)
For a 56yo woman to buy a deferred income annuity with ($1,667/mo) payments beginning at age 60 (in NY):$267,641.47

The difference in price between the 60yo immediate, and 56yo deferring for 4 years effectively represents a 4.05% CAGR,
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Building an income stream with Cash

Post by dbr »

AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am The thread about the person with $2M in cash got me thinking. Someone commented that that could be turned into an income stream of $80k a year in a 4 percent note.

Naturally increasing the return to 4% from what you are getting on the cash is a good thing, but that is obvious. What are the other choices for the investment of that money?

I think it makes more sense to attend to the risk and return of your portfolio as a whole and recognize that the outcome is a balance of returns on all your investments plus the contributions less the withdrawals. That income stream simply puts part of your assets in an investment that has 4% nominal return, no term or credit risk, and together with you taking an $80k withdrawal each year, both of those for two years. After that, what, and what are the rest of your investments and withdrawals doing?

There are some common long term ways to give up investment assets in exchange for income streams. Those include buying an SPIA, with or without some set COLA, or setting up a long term bond ladder. Otherwise what you are really doing is looking only at an irrelevant piece of short term behavior in a long term plan. It is irrelevant unless there is a specific short term expenditure that is very large and needs to be realized on exactly both in amount and timing. Note the result at the end is to have zero net gain in that asset but to have not spent from other assets. Figuring out whether or not that helps your long term plan is really hard to do and the result is mostly a wash.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

dbr wrote: Sun Oct 09, 2022 9:28 am
AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am The thread about the person with $2M in cash got me thinking. Someone commented that that could be turned into an income stream of $80k a year in a 4 percent note.

Naturally increasing the return to 4% from what you are getting on the cash is a good thing, but that is obvious. What are the other choices for the investment of that money?

I think it makes more sense to attend to the risk and return of your portfolio as a whole and recognize that the outcome is a balance of returns on all your investments plus the contributions less the withdrawals. That income stream simply puts part of your assets in an investment that has 4% nominal return, no term or credit risk, and together with you taking an $80k withdrawal each year, both of those for two years. After that, what, and what are the rest of your investments and withdrawals doing?

There are some common long term ways to give up investment assets in exchange for income streams. Those include buying an SPIA, with or without some set COLA, or setting up a long term bond ladder. Otherwise what you are really doing is looking only at an irrelevant piece of short term behavior in a long term plan. It is irrelevant unless there is a specific short term expenditure that is very large and needs to be realized on exactly both in amount and timing. Note the result at the end is to have zero net gain in that asset but to have not spent from other assets. Figuring out whether or not that helps your long term plan is really hard to do and the result is mostly a wash.
I’m not the one with 2M in cash - just 600 (in banks).

The rest of my assets are working:
1. Home - inflation hedge, possible home price appreciation or sell for a nicer home. 600k.fine
2. 600k 401k. 25/75. Increasing equity to 30/70. Also fine, maxing.
3. Taxable 150k 65/35 - adding equities (VTI)
4. Banks - 600k, just eroding away, deadwood EF not needed. I could probably manage with a 100k EF.
5. 12k in a Roth IRA. Will keep maxing this and catch up.
6. Good cash flow, investing around 140-150k per year
7. Pension and SS, contributing.
8. No debt service.
9. Maxing the ibonds

My point is, the only major problem is the deadwood in banks right now.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 9:43 am, edited 1 time in total.
dbr
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Re: Building an income stream with Cash

Post by dbr »

AnnetteLouisan wrote: Sun Oct 09, 2022 9:40 am
dbr wrote: Sun Oct 09, 2022 9:28 am
AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am The thread about the person with $2M in cash got me thinking. Someone commented that that could be turned into an income stream of $80k a year in a 4 percent note.

Naturally increasing the return to 4% from what you are getting on the cash is a good thing, but that is obvious. What are the other choices for the investment of that money?

I think it makes more sense to attend to the risk and return of your portfolio as a whole and recognize that the outcome is a balance of returns on all your investments plus the contributions less the withdrawals. That income stream simply puts part of your assets in an investment that has 4% nominal return, no term or credit risk, and together with you taking an $80k withdrawal each year, both of those for two years. After that, what, and what are the rest of your investments and withdrawals doing?

There are some common long term ways to give up investment assets in exchange for income streams. Those include buying an SPIA, with or without some set COLA, or setting up a long term bond ladder. Otherwise what you are really doing is looking only at an irrelevant piece of short term behavior in a long term plan. It is irrelevant unless there is a specific short term expenditure that is very large and needs to be realized on exactly both in amount and timing. Note the result at the end is to have zero net gain in that asset but to have not spent from other assets. Figuring out whether or not that helps your long term plan is really hard to do and the result is mostly a wash.
I’m not the one with 2M in cash - just 600 (in banks).

The rest of my assets are working:
1. Home - inflation hedge, possible home price appreciation or sell for a nicer home. 600k.fine
2. 600k 401k. 25/75. Increasing equity to 30/70
3. Taxable 150k 65/35 - adding equities
4. Banks - 600k, just eroding away, deadwood EF not needed. I could probably manage with a 100k EF.
5. 12k in a Roth IRA
6. Good cash flow, investing around 140-150k per year
The comments apply to whoever has the $2M and is thinking of investing that for two years at 4% and at the same time cashing the dividend checks.
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Re: Building an income stream with Cash

Post by gougou »

SPX Box Spreads have a slightly higher yield than Treasuries (about 4.6% for 2 year boxes) and 60% of the gain is taxed as long term capital gains. So that could be a better option. There’s a thread on bogleheads about SPX Box Spreads.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

gougou wrote: Sun Oct 09, 2022 9:54 am SPX Box Spreads have a slightly higher yield than Treasuries (about 4.6% for 2 year boxes) and 60% of the gain is taxed as long term capital gains. So that could be a better option. There’s a thread on bogleheads about SPX Box Spreads.
Thank you for the suggestion but I have a margin allergy. :)
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Re: Building an income stream with Cash

Post by Grt2bOutdoors »

AnnetteLouisan wrote: Sun Oct 09, 2022 9:40 am
dbr wrote: Sun Oct 09, 2022 9:28 am
AnnetteLouisan wrote: Sun Oct 09, 2022 5:53 am The thread about the person with $2M in cash got me thinking. Someone commented that that could be turned into an income stream of $80k a year in a 4 percent note.

Naturally increasing the return to 4% from what you are getting on the cash is a good thing, but that is obvious. What are the other choices for the investment of that money?

I think it makes more sense to attend to the risk and return of your portfolio as a whole and recognize that the outcome is a balance of returns on all your investments plus the contributions less the withdrawals. That income stream simply puts part of your assets in an investment that has 4% nominal return, no term or credit risk, and together with you taking an $80k withdrawal each year, both of those for two years. After that, what, and what are the rest of your investments and withdrawals doing?

There are some common long term ways to give up investment assets in exchange for income streams. Those include buying an SPIA, with or without some set COLA, or setting up a long term bond ladder. Otherwise what you are really doing is looking only at an irrelevant piece of short term behavior in a long term plan. It is irrelevant unless there is a specific short term expenditure that is very large and needs to be realized on exactly both in amount and timing. Note the result at the end is to have zero net gain in that asset but to have not spent from other assets. Figuring out whether or not that helps your long term plan is really hard to do and the result is mostly a wash.
I’m not the one with 2M in cash - just 600 (in banks).

The rest of my assets are working:
1. Home - inflation hedge, possible home price appreciation or sell for a nicer home. 600k.fine
2. 600k 401k. 25/75. Increasing equity to 30/70. Also fine, maxing.
3. Taxable 150k 65/35 - adding equities (VTI)
4. Banks - 600k, just eroding away, deadwood EF not needed. I could probably manage with a 100k EF.
5. 12k in a Roth IRA. Will keep maxing this and catch up.
6. Good cash flow, investing around 140-150k per year
7. Pension and SS, contributing.
8. No debt service.
9. Maxing the ibonds

My point is, the only major problem is the deadwood in banks right now.
I would read the tea leaves of the FOMC: they are going to keep raising rates until Q1 of 2023 when they will re-assess the inflation picture.

I would not buy a bond fund. I would buy the 2, 3 and 5 year Treasury notes. You suggested buying a 6 month and 52 week bill - do you need the money at those junctures? If no, then invest for income means extending the maturity out to lock in those higher yields for longer.

Buy the 2 year note after the Fed raises in November. Buy the 3 year note in December. You have 600k - you could buy 6-8 notes staggering them to mature in 2,3,5 years at different months. If you really want the 52 week bill, put less in that one and more in the long dated ones.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

Ok so:

Around 175 in one or two 2-year notes in November
150 in one or two 3-year notes in December
150 in maybe 3 5-year notes (December?)

That’s 475 and leaves me 100 for HYSA or 8 week t bills and 50k into ibonds and equities, for a total of 600. Plus cash reserves still being added to.

That works.

Thanks everyone.good stuff!
Last edited by AnnetteLouisan on Sun Oct 09, 2022 10:17 am, edited 1 time in total.
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Re: Building an income stream with Cash

Post by KlangFool »

AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

You have more money than you need. Time to simplify and make your life easier.

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Re: Building an income stream with Cash

Post by AnnetteLouisan »

KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

KlangFool
True, Klang, good point. Simplicity would be terrific. Trying to get there.

But I like the No ER aspect of treasuries, the rates seem a lot higher (and I’m a maximizer, sometimes) and I have Fidelity rather than Vanguard so that fund would have transfer fees for me.

I have more money than I need *right now* but overall less money than I’ll likely need to fund ages 60-90 if I am graced with such (doubtful but I’m working on it). Nw $1.95, markets down, inflation up, bond heavy, VHCOLA, independent and need to move.
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Re: Building an income stream with Cash

Post by goodenyou »

AnnetteLouisan wrote: Sun Oct 09, 2022 10:20 am
KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

KlangFool
True, Klang, good point. Simplicity would be terrific. Trying to get there.

But I like the No ER aspect of treasuries, the rates seem a lot higher (and I’m a maximizer, sometimes) and I have Fidelity rather than Vanguard so that fund would have transfer fees for me.

I have more money than I need *right now* but overall less money than I’ll likely need to fund ages 60-90 if I am graced with such (doubtful but I’m working on it). Nw $1.95, markets down, inflation up, bond heavy, VHCOLA, independent and need to move.
Sounds like myopic loss aversion. It will cost your dearly.
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Re: Building an income stream with Cash

Post by Kenkat »

At 56, you are at a minimum 6 years away from social security and 14 years away what is possibly the optimal claiming age of 70. So you don’t really need a $20k income stream at the moment. It does make sense to look at something higher yielding vs. letting this sit in a savings account. I don’t know what you are earning there, but if you don’t need the money immediately, something like t-bills could make sense.

If you are planning to retire in a couple of years, I’d take a step back and figure out how you will fund retirement, both before social security and after. Then see how that $600k fits into those plans.
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Re: Building an income stream with Cash

Post by RetiredAL »

AnnetteLouisan wrote: Sun Oct 09, 2022 10:12 am Ok so:

Around 175 in one or two 2-year notes in November
150 in one or two 3-year notes in December
150 in maybe 3 5-year notes (December?)

That’s 475 and leaves me 100 for HYSA or 8 week t bills and 50k into ibonds and equities, for a total of 600. Plus cash reserves still being added to.

That works.

Thanks everyone.good stuff!
IMO, emergency $ only needs to cover a month of spending, which gives plenty of time to sell something if some big emergency did happen. Remember, the probability of need this is very low. Any money that is readily accessible can be used for emergencies. It does not need to be in a saving account.

Note that 5 yr is lower than 1 or 2 years right now.

If me, I'd do several weeks of 1yr. Why several? So if you have to liquidate, you have a smaller unit to do so with and the rate difference is nil to a 2 or 3 yr.
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Re: Building an income stream with Cash

Post by JayB »

AnnetteLouisan wrote: Sun Oct 09, 2022 8:33 am Ok how’s this?
100k HYSA
75k 8 week t bill on auto roll
75k in a 26 week t bill, auto roll
75k in a 52 week t bill on auto roll
75k in a two year note
50k in a muni bond fund

Does this kind of staggering make sense for someone with a job currently? Are those maturities too short or does auto roll make up for it and let me capture near term rate increases?
I recommend largely skipping the Treasurys and buying mostly NY muni bonds directly (e.g., through Fidelity) and holding them to call or maturity. A quick look at Fidelity showed 159 top-quality munis with AAA underlying ratings available; 28 of these listings are showing yields to worst of 4% or greater; that's a TEY of 6%+ for comparison to Treasurys (nontaxable at the state level) for somebody in the 35% federal bracket. You can ladder these munis over the next 10 years or so.

Beyond the AAA ratings, if you're still concerned about the risk of muni's not paying back, you can purchase noncallable NY escrowed-to-maturity (ETM) bonds; Fidelity lists 16 of these with maturities ranging from 2023 to 2027 and YTMs ranging from 2.56 to 3.01 (with translates to a TEY range of 3.94% to 4.63 for comparison to non-state-taxable Treasurys). ETM munis are about as secure as Treasurys because the funds to pay back bondholders are held in escrow in Treasurys.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

Kenkat wrote: Sun Oct 09, 2022 10:26 am At 56, you are at a minimum 6 years away from social security and 14 years away what is possibly the optimal claiming age of 70. So you don’t really need a $20k income stream at the moment. It does make sense to look at something higher yielding vs. letting this sit in a savings account. I don’t know what you are earning there, but if you don’t need the money immediately, something like t-bills could make sense.

If you are planning to retire in a couple of years, I’d take a step back and figure out how you will fund retirement, both before social security and after. Then see how that $600k fits into those plans.
Pension and SS will cover 80 percent of my highest year estimated retirement expenses. Plus I have my 401k, IRA, taxable a/c and bank savings. And may have other income and assets if I stay on my parents kaleidoscopically shifting good side.

Very true I don’t need the 20k now, but as mentioned in my original post, I thought it would be nice to layer on top of my pension and SS in retirement, so I was looking for longer term instruments. 3 and 5k notes are a good start. I can keep adding them if rates stay high.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 10:34 am, edited 1 time in total.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

goodenyou wrote: Sun Oct 09, 2022 10:25 am
AnnetteLouisan wrote: Sun Oct 09, 2022 10:20 am
KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

KlangFool
True, Klang, good point. Simplicity would be terrific. Trying to get there.

But I like the No ER aspect of treasuries, the rates seem a lot higher (and I’m a maximizer, sometimes) and I have Fidelity rather than Vanguard so that fund would have transfer fees for me.

I have more money than I need *right now* but overall less money than I’ll likely need to fund ages 60-90 if I am graced with such (doubtful but I’m working on it). Nw $1.95, markets down, inflation up, bond heavy, VHCOLA, independent and need to move.
Sounds like myopic loss aversion. It will cost your dearly.
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 10:36 am, edited 1 time in total.
KlangFool
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Re: Building an income stream with Cash

Post by KlangFool »

AnnetteLouisan wrote: Sun Oct 09, 2022 10:20 am
KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

KlangFool
True, Klang, good point. Simplicity would be terrific. Trying to get there.

But I like the No ER aspect of treasuries, the rates seem a lot higher (and I’m a maximizer, sometimes) and I have Fidelity rather than Vanguard so that fund would have transfer fees for me.

I have more money than I need *right now* but overall less money than I’ll likely need to fund ages 60-90 if I am graced with such (doubtful but I’m working on it). Nw $1.95, markets down, inflation up, bond heavy, VHCOLA, independent and need to move.
Then, use a Fidelity Treasury Money Market Fund instead. The difference is too minor to matter.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
dbr
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Re: Building an income stream with Cash

Post by dbr »

AnnetteLouisan wrote: Sun Oct 09, 2022 10:32 am
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
What in fact is your overall asset allocation plan? Typically for a long retirement there is no need for cash or short term fixed income except to be able to handle cash flow needs. Some people are just more comfortable with cash like holdings like savings, CDs, T bills, short term bond holdings, etc., but then one can either just pick something reasonable or be forever running around comparing yields. In general long term investing for retirement more logically considers the duration of investments being matched to duration of needs. Instead of all that cash the money probably belongs in stocks and intermediate or longer bond funds.

What does matter in a long term plan is understanding the proposed rate of withdrawal and having a balanced asset allocation to deal with that without taking too much or too little risk. The mechanics of how to take withdrawals are myriad and can be worked out using common sense. There is no need to build specific income streams from investments per se for retirement. The considerations are tax costs and convenience. Income streams that really are income streams, such as Social Security, pensions, annuities, etc. do matter, but those are not usually subject to a lot of changing around nor is there much choice.
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Re: Building an income stream with Cash

Post by thenow »

In quickly reading your post your in wonderful shape now and in the future. I started taking money out of my bank savings and buying 6 month treasury bills at different maturity dates through Vanguard brokerage account. I regret not doing more of it this year. I do wonder why you don’t contribute some amounts to the NY municipal fund. I am in a state with no state taxes. If I lived in California or NY I would seriously consider the NY or CA Vanguard municipal funds...perhaps the funds are intermediate durations. Alternatively, you might buy something directly through the state agencies. Secondly, I do wonder about a “tax bomb” that might occur in your future. The back door Roth may be unavailable in your future. Lastly, hopefully your career is stable which gives you a lot of security and flexibility. I would probably see about increasing your AA allocation in your taxable account. Your young enough to add more equity AA amounts. Plus, eventually interest rates (who can time it successfully) may eventually go down and cash will then become “trash” lol.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

dbr wrote: Sun Oct 09, 2022 10:45 am
AnnetteLouisan wrote: Sun Oct 09, 2022 10:32 am
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
What in fact is your overall asset allocation plan? Typically for a long retirement there is no need for cash or short term fixed income except to be able to handle cash flow needs. Some people are just more comfortable with cash like holdings like savings, CDs, T bills, short term bond holdings, etc., but then one can either just pick something reasonable or be forever running around comparing yields. In general long term investing for retirement more logically considers the duration of investments being matched to duration of needs. Instead of all that cash the money probably belongs in stocks and intermediate or longer bond funds.

What does matter in a long term plan is understanding the proposed rate of withdrawal and having a balanced asset allocation to deal with that without taking too much or too little risk. The mechanics of how to take withdrawals are myriad and can be worked out using common sense. There is no need to build specific income streams from investments per se for retirement. The considerations are tax costs and convenience. Income streams that really are income streams, such as Social Security, pensions, annuities, etc. do matter, but those are not usually subject to a lot of changing around nor is there much choice.
Well, assuming retiring at 58, latest at 60, needing on average 75k a year (currently spend 35-40), my target AA is 30/70 - at 20/80 now. Taking small pension at 58, SS at 65 or 70 depending on health, SWR of 3.5 percent max (don’t expect to need it all)

60s funded by pension, bank savings and 401k
70s funded by taxable brokerage a/c, pension, SS, 401k and Roth IRA
80s funded by pension, taxable, SS, treasuries, RE sales
90s funded by pension, SS, & whatever’s left

Plan to take pension early rather than defer so as not to run into bureaucratic problems if I defer, but delay SS for longevity insurance. I have LTCI, LTD and supplemental medical in retirement through work etc. my TSP is mostly in G Fund and 1/4 S&P 500, and I have an institutional bond fund in my 401k plus S&P 500. Shoveling VTI into taxable.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

thenow wrote: Sun Oct 09, 2022 11:00 am In quickly reading your post your in wonderful shape now and in the future. I started taking money out of my bank savings and buying 6 month treasury bills at different maturity dates through Vanguard brokerage account. I regret not doing more of it this year. I do wonder why you don’t contribute some amounts to the NY municipal fund. I am in a state with no state taxes. If I lived in California or NY I would seriously consider the NY or CA Vanguard municipal funds...perhaps the funds are intermediate durations. Alternatively, you might buy something directly through the state agencies. Secondly, I do wonder about a “tax bomb” that might occur in your future. The back door Roth may be unavailable in your future. Lastly, hopefully your career is stable which gives you a lot of security and flexibility. I would probably see about increasing your AA allocation in your taxable account. Your young enough to add more equity AA amounts. Plus, eventually interest rates (who can time it successfully) may eventually go down and cash will then become “trash” lol.
I think my hesitancy about my munis comes from the trauma of living through nyc almost defaulting and only being saved by Felix Rohatyn at the last moment.
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Re: Building an income stream with Cash

Post by dbr »

AnnetteLouisan wrote: Sun Oct 09, 2022 11:03 am
dbr wrote: Sun Oct 09, 2022 10:45 am
AnnetteLouisan wrote: Sun Oct 09, 2022 10:32 am
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
What in fact is your overall asset allocation plan? Typically for a long retirement there is no need for cash or short term fixed income except to be able to handle cash flow needs. Some people are just more comfortable with cash like holdings like savings, CDs, T bills, short term bond holdings, etc., but then one can either just pick something reasonable or be forever running around comparing yields. In general long term investing for retirement more logically considers the duration of investments being matched to duration of needs. Instead of all that cash the money probably belongs in stocks and intermediate or longer bond funds.

What does matter in a long term plan is understanding the proposed rate of withdrawal and having a balanced asset allocation to deal with that without taking too much or too little risk. The mechanics of how to take withdrawals are myriad and can be worked out using common sense. There is no need to build specific income streams from investments per se for retirement. The considerations are tax costs and convenience. Income streams that really are income streams, such as Social Security, pensions, annuities, etc. do matter, but those are not usually subject to a lot of changing around nor is there much choice.
Well, assuming retiring at 58, latest at 60, needing on average 75k a year (currently spend 35-40), my target AA is 30/70 - at 20/80 now. Taking small pension at 58, SS at 65 or 70 depending on health, SWR of 3.5 percent max (don’t expect to need it all)

60s funded by pension, bank savings and 401k
70s funded by taxable brokerage a/c, pension, SS, 401k and Roth IRA
80s funded by pension, taxable, SS, treasuries, RE sales
90s funded by pension, SS, & whatever’s left

Plan to take pension early rather than defer so as not to run into bureaucratic problems if I defer, but delay SS for longevity insurance. I have LTCI, LTD and supplemental medical in retirement through work etc. my TSP is mostly in G Fund and 1/4 S&P 500, and I have an institutional bond fund in my 401k plus S&P 500. Shoveling VTI into taxable.
Asset allocation is not about what accounts things are in but what the assets are, stocks or bonds. Withdrawals are withdrawals whatever the mechanics of where and when the withdrawal is sourced. What accounts things are in does affect your tax costs as does the where and when of how the withdrawals are sourced. It does matter what the withdrawal rate is, some unspecified number apparently less than 3.5%. Your withdrawal rate will be higher before you start SS and lower after.

Have you plunked the basics into a model like FireCalc just to lay out what the grand plan looks like? What FireCalc does do is take your portfolio value, your asset allocation broadly, your expected total spending, your income streams with start dates,* and the length of time to be considered and produce an estimate of the range of outcomes you can expect. There are some options for what kind of fixed income you have, but the choices don't usually have much effect on the outcome. FireCalc includes tax costs in spending but does not do tax planning.

*Income streams from assets are just withdrawals and are immaterial as to whether the actual source is collecting interest, dividends, withdrawing money from a savings account, selling shares or whatever.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

dbr wrote: Sun Oct 09, 2022 11:25 am
AnnetteLouisan wrote: Sun Oct 09, 2022 11:03 am
dbr wrote: Sun Oct 09, 2022 10:45 am
AnnetteLouisan wrote: Sun Oct 09, 2022 10:32 am
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
What in fact is your overall asset allocation plan? Typically for a long retirement there is no need for cash or short term fixed income except to be able to handle cash flow needs. Some people are just more comfortable with cash like holdings like savings, CDs, T bills, short term bond holdings, etc., but then one can either just pick something reasonable or be forever running around comparing yields. In general long term investing for retirement more logically considers the duration of investments being matched to duration of needs. Instead of all that cash the money probably belongs in stocks and intermediate or longer bond funds.

What does matter in a long term plan is understanding the proposed rate of withdrawal and having a balanced asset allocation to deal with that without taking too much or too little risk. The mechanics of how to take withdrawals are myriad and can be worked out using common sense. There is no need to build specific income streams from investments per se for retirement. The considerations are tax costs and convenience. Income streams that really are income streams, such as Social Security, pensions, annuities, etc. do matter, but those are not usually subject to a lot of changing around nor is there much choice.
Well, assuming retiring at 58, latest at 60, needing on average 75k a year (currently spend 35-40), my target AA is 30/70 - at 20/80 now. Taking small pension at 58, SS at 65 or 70 depending on health, SWR of 3.5 percent max (don’t expect to need it all)

60s funded by pension, bank savings and 401k
70s funded by taxable brokerage a/c, pension, SS, 401k and Roth IRA
80s funded by pension, taxable, SS, treasuries, RE sales
90s funded by pension, SS, & whatever’s left

Plan to take pension early rather than defer so as not to run into bureaucratic problems if I defer, but delay SS for longevity insurance. I have LTCI, LTD and supplemental medical in retirement through work etc. my TSP is mostly in G Fund and 1/4 S&P 500, and I have an institutional bond fund in my 401k plus S&P 500. Shoveling VTI into taxable.
Asset allocation is not about what accounts things are in but what the assets are, stocks or bonds. Withdrawals are withdrawals whatever the mechanics of where and when the withdrawal is sourced. What accounts things are in does affect your tax costs as does the where and when of how the withdrawals are sourced. It does matter what the withdrawal rate is, some unspecified number apparently less than 3.5%. Your withdrawal rate will be higher before you start SS and lower after.

Have you plunked the basics into a model like FireCalc just to lay out what the grand plan looks like? What FireCalc does do is take your portfolio value, your asset allocation broadly, your expected total spending, your income streams with start dates,* and the length of time to be considered and produce an estimate of the range of outcomes you can expect. There are some options for what kind of fixed income you have, but the choices don't usually have much effect on the outcome. FireCalc includes tax costs in spending but does not do tax planning.

*Income streams from assets are just withdrawals and are immaterial as to whether the actual source is collecting interest, dividends, withdrawing money from a savings account, selling shares or whatever.
Yes my 401k offered a Monte Carlo simulator and I plugged in various scenarios. My current AA is 20/80 with a goal of 30/70. I have a 50k per year withdrawal, 55k and 70k and they all look good (90-98 percent success rates). And in most I understate the likely reality just to be conservative (ie, will probably have more and live less than I factor in).

What they don’t factor in is SS means testing, tax increases, fraud, depression, war and medical catastrophes.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

thenow wrote: Sun Oct 09, 2022 11:00 am In quickly reading your post your in wonderful shape now and in the future. I started taking money out of my bank savings and buying 6 month treasury bills at different maturity dates through Vanguard brokerage account. I regret not doing more of it this year. I do wonder why you don’t contribute some amounts to the NY municipal fund. I am in a state with no state taxes. If I lived in California or NY I would seriously consider the NY or CA Vanguard municipal funds...perhaps the funds are intermediate durations. Alternatively, you might buy something directly through the state agencies. Secondly, I do wonder about a “tax bomb” that might occur in your future. The back door Roth may be unavailable in your future. Lastly, hopefully your career is stable which gives you a lot of security and flexibility. I would probably see about increasing your AA allocation in your taxable account. Your young enough to add more equity AA amounts. Plus, eventually interest rates (who can time it successfully) may eventually go down and cash will then become “trash” lol.
What tax bomb? Are you referring to the whole state estate tax cliff real estate thing that I mentioned in past threads? I was convinced (here) not to fund that with my savings.

Yes my career is pretty stable and offers early retirement at 57 but I can work longer.

All the above is “worst case scenario.”
Last edited by AnnetteLouisan on Sun Oct 09, 2022 1:08 pm, edited 3 times in total.
dbr
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Re: Building an income stream with Cash

Post by dbr »

AnnetteLouisan wrote: Sun Oct 09, 2022 11:32 am
dbr wrote: Sun Oct 09, 2022 11:25 am
AnnetteLouisan wrote: Sun Oct 09, 2022 11:03 am
dbr wrote: Sun Oct 09, 2022 10:45 am
AnnetteLouisan wrote: Sun Oct 09, 2022 10:32 am
I’m also DCAing into equities in my 401k, IRA and taxable for the pop. This discussion is just about my deadweight cash portion.

While it isn’t easy to be here, and I didn’t expect to arrive here, it sure as heck beats worrying about grocery prices like my mom did when she was my age.
What in fact is your overall asset allocation plan? Typically for a long retirement there is no need for cash or short term fixed income except to be able to handle cash flow needs. Some people are just more comfortable with cash like holdings like savings, CDs, T bills, short term bond holdings, etc., but then one can either just pick something reasonable or be forever running around comparing yields. In general long term investing for retirement more logically considers the duration of investments being matched to duration of needs. Instead of all that cash the money probably belongs in stocks and intermediate or longer bond funds.

What does matter in a long term plan is understanding the proposed rate of withdrawal and having a balanced asset allocation to deal with that without taking too much or too little risk. The mechanics of how to take withdrawals are myriad and can be worked out using common sense. There is no need to build specific income streams from investments per se for retirement. The considerations are tax costs and convenience. Income streams that really are income streams, such as Social Security, pensions, annuities, etc. do matter, but those are not usually subject to a lot of changing around nor is there much choice.
Well, assuming retiring at 58, latest at 60, needing on average 75k a year (currently spend 35-40), my target AA is 30/70 - at 20/80 now. Taking small pension at 58, SS at 65 or 70 depending on health, SWR of 3.5 percent max (don’t expect to need it all)

60s funded by pension, bank savings and 401k
70s funded by taxable brokerage a/c, pension, SS, 401k and Roth IRA
80s funded by pension, taxable, SS, treasuries, RE sales
90s funded by pension, SS, & whatever’s left

Plan to take pension early rather than defer so as not to run into bureaucratic problems if I defer, but delay SS for longevity insurance. I have LTCI, LTD and supplemental medical in retirement through work etc. my TSP is mostly in G Fund and 1/4 S&P 500, and I have an institutional bond fund in my 401k plus S&P 500. Shoveling VTI into taxable.
Asset allocation is not about what accounts things are in but what the assets are, stocks or bonds. Withdrawals are withdrawals whatever the mechanics of where and when the withdrawal is sourced. What accounts things are in does affect your tax costs as does the where and when of how the withdrawals are sourced. It does matter what the withdrawal rate is, some unspecified number apparently less than 3.5%. Your withdrawal rate will be higher before you start SS and lower after.

Have you plunked the basics into a model like FireCalc just to lay out what the grand plan looks like? What FireCalc does do is take your portfolio value, your asset allocation broadly, your expected total spending, your income streams with start dates,* and the length of time to be considered and produce an estimate of the range of outcomes you can expect. There are some options for what kind of fixed income you have, but the choices don't usually have much effect on the outcome. FireCalc includes tax costs in spending but does not do tax planning.

*Income streams from assets are just withdrawals and are immaterial as to whether the actual source is collecting interest, dividends, withdrawing money from a savings account, selling shares or whatever.
Yes my 401k offered a Monte Carlo simulator and I plugged in various scenarios. My current AA is 20/80 with a goal of 30/70. I have a 50k per year withdrawal, 55k and 70k and they all look good (90-98 percent success rates). And in most I understate the likely reality just to be conservative (ie, will probably have more and live less than I factor in).

What they don’t factor in is SS means testing, tax increases, fraud, depression, war and medical catastrophes.
So, you have nothing to worry about and probably should not be concerned about turning cash into income streams. It does seem holding a lot of money in low yielding cash does not make sense compared to putting that money into longer term fixed income holdings such as bond funds, etc.

What is your selection of that 70% fixed income going to be. I am at 50% fixed income and it is all in an intermediate TIPS fund.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

I have G Fund, I bonds, BCOIX (Baird Core Bond institutional Index Fund), t-bills, SVFs, MMFs and HYSAs. Just want to change HYSAs to t notes.

My equities are S&P 500, VTI (still adding to both) and a smidge of EAFE intl index (under 5 percent).

No bitcoin, NFTs, currencies, leaps, options, structured notes, insurance as investment (other than GICs and GACs in the MMF and SVF), or individual stocks and no plans to. Other than BCOIX no active funds. No advisors, wealth managers, trophy paramours, “business partners” or accountants.

Ideally I would do the 3 Fund portfolio:
G Fund in TSP; I bonds and t-notes tax deferred
S&P and SVF in 401k
S&P and or total market in Roth IRA in taxable

You know, weed out the underbrush. But I don’t want to sell when investments are down, so I’ll prune when they are up. Who knows? Intl could pop if the EU situation resolves soon.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 11:58 am, edited 2 times in total.
phoroner
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Re: Building an income stream with Cash

Post by phoroner »

Annette,

Do you have access to a BrokerageLink in your 401k? For a very conservative investor, I would suggest considering a ladder of individual TIPS bonds to be held to maturity. It is more tax efficient to do so in a tax-deferred account but can also be done in a brokerage account. It is not difficult to do, buying a TIPS bond is just like any other bond. If you plan to hold to maturity you could buy 20k per year for ages 65-90 and know you have a guaranteed positive real return regardless of markets. A very conservative investor may find more comfort extending FI duration in this manner as you can then ignore market value fluctuations and only track par values.

Then you could hold more of your equity position in your taxable brokerage to stay at your total AA.

Best wishes
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

phoroner wrote: Sun Oct 09, 2022 11:51 am Annette,

Do you have access to a BrokerageLink in your 401k? For a very conservative investor, I would suggest considering a ladder of individual TIPS bonds to be held to maturity. It is more tax efficient to do so in a tax-deferred account but can also be done in a brokerage account. It is not difficult to do, buying a TIPS bond is just like any other bond. If you plan to hold to maturity you could buy 20k per year for ages 65-90 and know you have a guaranteed positive real return regardless of markets. A very conservative investor may find more comfort extending FI duration in this manner as you can then ignore market value fluctuations and only track par values.

Then you could hold more of your equity position in your taxable brokerage to stay at your total AA.

Best wishes
That’s interesting. Many thanks. Yes I do. Is the G Fund just as good as TIPS? I could put 100 percent of my TSP future allocation into G rather than 75/25 G Fund / S&P 500. I know some people make their TSP their bond holding since you can buy great equity funds in taxable and don’t need the tsp for that. It’s better asset location too. The reason I keep my tax deferred 25 percent equities is for the asset protection of retirement accounts. Thank you again, good suggestions.
AlwaysLearningMore
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Re: Building an income stream with Cash

Post by AlwaysLearningMore »

MYGA fixed rates in NY currently available at 4% (3 years) and from what I gather one can withdraw up to 10% each of the first 2 years (I don't own one of these, please do your own due diligence). It's almost my understanding that generally speaking MYGA's have steep penalties for early withdrawal.

Of course, Treasury bill and note rates have been increasing: https://www.wsj.com/market-data/bonds

Hope you find options that work well for you.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
AlwaysLearningMore
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Re: Building an income stream with Cash

Post by AlwaysLearningMore »

KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

You have more money than you need. Time to simplify and make your life easier.

KlangFool
Simplicity has its merits, but locking in a higher rate provides a known income stream. The Vanguard Treasury Money Market Fund's rate is sure to drop if the Fed cuts rates. (Yes, it could also rise if rates go up.) But OP seems most interested in a known income stream.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
dbr
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Re: Building an income stream with Cash

Post by dbr »

AlwaysLearningMore wrote: Sun Oct 09, 2022 12:30 pm
KlangFool wrote: Sun Oct 09, 2022 10:17 am AP,

"Around 175 in one or two 2 year notes in November
150 in one or two 3 year notes in December
150 in maybe 3 5 year notes (December?)"

Instead of over complicating the whole thing, you could put most of your 600K into the Vanguard Treasury Money Market Fund and call it a day. The difference is too minor to matter to you.

https://investor.vanguard.com/investmen ... file/vusxx

You have more money than you need. Time to simplify and make your life easier.

KlangFool
Simplicity has its merits, but locking in a higher rate provides a known income stream. The Vanguard Treasury Money Market Fund's rate is sure to drop if the Fed cuts rates. (Yes, it could also rise if rates go up.) But OP seems most interested in a known income stream.
I think the OP on this thread is interested in providing a secure retirement where financial resources will be sufficient to support spending with some margin and little risk of failure. Locking in a known income stream (in nominal dollars) for a set length of time is probably neither here nor there for that purpose. In fact many retirees have secure income streams that have nothing to do with investing because the income is an independent income stream such as Social Security, pensions, and annuities. These also have the advantage of pooling longevity risk with a cohort of fellow retirees.

It is true that a person could want or need a known income stream for a short time, but those cases are rare and highly specialized.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

These are all great points, thank you. I don’t care what we call it, known income stream, fixed coupon investment or a positive real return. Just want to have a decent return on something reasonably sure for my fixed income portion when rates are good, rather than losing money every day in a savings account. It sounded better when it was 80k on 2M to tell you the truth. :)
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Leif
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Re: Building an income stream with Cash

Post by Leif »

I'm keeping part of my bonds short term now. I'm thinking perhaps the middle of next year I'll extended the maturity of my 3 month T-Bill to 3-5 year CDs/bonds. That is assuming that the Fed has stopped raising the federal funds rate, but is still selling Treasury bonds at IT/LT. Having bought some 1-2 yr. bonds, and seeing their rates passed by the FFR, I've learned to not fight the Fed.
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Re: Building an income stream with Cash

Post by Abe »

Annette:
All the advise from other people is from their perspective. There is nothing wrong with listening to what others have to say and considering it, but do what you feel comfortable with. I am in a similar situation as you. Because I didn't want to put any more in stocks and real estate, I have built up a lot of cash that has not been returning very much for a long time. I have recently been putting it into short term treasury bills.
Slow and steady wins the race.
jimishooch
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Re: Building an income stream with Cash

Post by jimishooch »

I did a million in new issue brokerage CDs and called it a day. 6/12/18 months paying simple interest monthly at 4% or better all FDIC.
GreendaleCC
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Re: Building an income stream with Cash

Post by GreendaleCC »

Have you looked at Fidelity® New York Municipal Money Market Fund as an option?
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

GreendaleCC wrote: Sun Oct 09, 2022 2:18 pm Have you looked at Fidelity® New York Municipal Money Market Fund as an option?
FAWXX? FNYXX is closed to all investors.
FAWXX has a 0.42 ER, tax effective yield 4.25 percent. Could be good for part of it. Kind of high ER though, when treasuries pay the same with no ER or state and local tax.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 2:39 pm, edited 2 times in total.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

jimishooch wrote: Sun Oct 09, 2022 1:20 pm I did a million in new issue brokerage CDs and called it a day. 6/12/18 months paying simple interest monthly at 4% or better all FDIC.
That sounds like quite a day! :)
Did you buy through Fidelity?
jimishooch
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Re: Building an income stream with Cash

Post by jimishooch »

AnnetteLouisan wrote: Sun Oct 09, 2022 2:28 pm
jimishooch wrote: Sun Oct 09, 2022 1:20 pm I did a million in new issue brokerage CDs and called it a day. 6/12/18 months paying simple interest monthly at 4% or better all FDIC.
That sounds like quite a day! :)
Did you buy through Fidelity?
Vanguard but Fidelity has brokerage CDs as well. Actually it was 3 Cds. Took it the 250K limit on 2 and 500k on a joint CD.
Last edited by jimishooch on Sun Oct 09, 2022 2:45 pm, edited 1 time in total.
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

jimishooch wrote: Sun Oct 09, 2022 2:40 pm
AnnetteLouisan wrote: Sun Oct 09, 2022 2:28 pm
jimishooch wrote: Sun Oct 09, 2022 1:20 pm I did a million in new issue brokerage CDs and called it a day. 6/12/18 months paying simple interest monthly at 4% or better all FDIC.
That sounds like quite a day! :)
Did you buy through Fidelity?
Vanguard but Fidelity has brokerage CDs as well.
Yes, I need to get more familiar with their website in the fixed income side. So far all I bought on Fidelity since I opened it last year were VTI in taxable, FSKAX in an IRA and of course a core fund. 4 percent insured sounds much better than most. Even treasuries, really, which are tax free at the state and local level but not fdic backed. There was another thread on which is safer, treasuries or fdic insured funds, so I won’t repeat it here.
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Re: Building an income stream with Cash

Post by thenow »

What I meant by tax bomb (I believe Ed Slott used term, but could be wrong) was the potential taxes when you will be required to take required minimum distribution from your traditional IRAs. If one had mostly Roth IRAs, this RMD would not be an issue. I was always of the philosophy to delay taxes by constantly maxing out with traditional IRAs. Eventually taxes will have to be paid. The time value of money still may not be applicable. Furthermore, no one knows but given the almost USA 31 trillion dollar deficit, taxes may only increase. I understand your fear with safety concerns with NY municipal bonds…you want a comfort zone. You could invest In treasuries to at least overcome state income taxes. In my own post on my 10 biggest mistake of investments was the location, qualified vs non-qualified, of investment. Perhaps you want to think about this for future investments, but you may be way ahead of me on my suggestions and comments.
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Re: Building an income stream with Cash

Post by phoroner »

Hi Annette,

I read through the full thread again. It is not clear to me what your goal is. You need a goal rather than making piecemeal decisions with large portions of your savings. Some call this their written investment plan. It should be for your full portfolio not only one portion. dbr’s posts have attempted to address this.

Based on your estimated expenses being largely covered by SSA and pension, you have little need to take risk. You have substantial ability. Willingness is low-ish. That is all reasonable.

Do you want to maximize for:
- stability of nominal value of principal? -> cash or short-term FI, including g-fund in TSP or other stable-value fund.
- stable nominal income stream? -> IT or LT bond funds or ladders, or a SPIA
- stable inflation adjusted income stream? -> TIPS ladder
- market timing -> keep cash until rates “peak” and then extend duration

Only you can decide, but you can’t do all simultaneously. But my opinion is that having a long-term strategy is safer than constantly monitoring fixed-income market and changing the strategy.

best wishes.
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

thenow wrote: Sun Oct 09, 2022 3:24 pm What I meant by tax bomb (I believe Ed Slott used term, but could be wrong) was the potential taxes when you will be required to take required minimum distribution from your traditional IRAs. If one had mostly Roth IRAs, this RMD would not be an issue. I was always of the philosophy to delay taxes by constantly maxing out with traditional IRAs. Eventually taxes will have to be paid. The time value of money still may not be applicable. Furthermore, no one knows but given the almost USA 31 trillion dollar deficit, taxes may only increase. I understand your fear with safety concerns with NY municipal bonds…you want a comfort zone. You could invest In treasuries to at least overcome state income taxes. In my own post on my 10 biggest mistake of investments was the location, qualified vs non-qualified, of investment. Perhaps you want to think about this for future investments, but you may be way ahead of me on my suggestions and comments.
Oh yes good point. My t401k (600k) will be taxed quite a bit. My Roth IRA “fortunately” isn’t large enough to matter at $12k. Don’t have a traditional IRA except a shell to do my backdoor Roth conversions. Got to the IRA game late since I was always above the income limits and wasn’t aware of the whole RMD IRMAA thing when I was younger.

I’ve focused on asset location this year. Bonds in tax deferred, equities in taxable. My goal this year was to buy equities to get to 30/70, but now FI is in fashion so even though my IPS doesn’t call for more bonds since Im 20/80, I can’t ignore these rates. Also buying equities though. It’s like surfing the blue wave. Rough waters!
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AnnetteLouisan
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Re: Building an income stream with Cash

Post by AnnetteLouisan »

phoroner wrote: Sun Oct 09, 2022 3:26 pm Hi Annette,

I read through the full thread again. It is not clear to me what your goal is. You need a goal rather than making piecemeal decisions with large portions of your savings. Some call this their written investment plan. It should be for your full portfolio not only one portion. dbr’s posts have attempted to address this.

Based on your estimated expenses being largely covered by SSA and pension, you have little need to take risk. You have substantial ability. Willingness is low-ish. That is all reasonable.

Do you want to maximize for:
- stability of nominal value of principal? -> cash or short-term FI, including g-fund in TSP or other stable-value fund.
- stable nominal income stream? -> IT or LT bond funds or ladders, or a SPIA
- stable inflation adjusted income stream? -> TIPS ladder
- market timing -> keep cash until rates “peak” and then extend duration

Only you can decide, but you can’t do all simultaneously. But my opinion is that having a long-term strategy is safer than constantly monitoring fixed-income market and changing the strategy.

best wishes.
Probably item 4 on your list: market timing/ locking in a high rate long term.

I have an IPS written in 11/2021 which calls for buying equities to get to 30/70 from 20/80. However, the world is running in the opposite direction into treasuries, even whodidntante.

I’m excellently positioned to do a contrarian move and put it all into equities and hold for ten years, but only Warren & Charlie, Carminered2019 (my hero) and a few other brave souls with more assets than I have are doing so. I have ten years but not 20 or 30 if that doesn’t work out (unless I do… more, lol).

So I’m doing around 100k/yr into equities rather than say 700k in a lump sum, which I could do if I were a risk taker.

I could do $250k lump sum into equities realistically and the rest in treasuries. However if equities fell further …

I could do $50k a month, or every other month, on RBDs into the s + p 500, 5 times, and the rest in treasuries and just end this! I actually do have a life to live, all evidence to the contrary notwithstanding.

Right now I invest $6-12k per month outside my 401K and even that is the most I ever invested.
Last edited by AnnetteLouisan on Sun Oct 09, 2022 4:27 pm, edited 3 times in total.
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