Spouse and I are approaching full retirement, and the de-accumulation phase. We have already made the decision to put roughly half of our investments into some combination of TIPS and I Bonds in an amount that would provide 22 years of inflation protected annual income equal to the amount of my (higher than spouse) defined benefit pension plan (with COLA; no survivor benefit). The "job" of the income from the TIPS/I Bonds would be to a) replace my pension income if I die before my spouse; and b) create income for unexpected lumpy expenses. We are not trying to increase our wealth with this pot of money, only protect it.
I have already built a 22 year TIPS ladder that produces 3/5ths of the income needed. Now I'm trying to figure out the best mix of TIPS/I Bonds for the remainder. Do I build out the remaining 2/5ths in TIPS, or in I Bonds using the gift strategy (in which we would gift each other 10K for each of the 22 years--purchased this spring while the fixed rate is relatively high)?
For us, I think the choice boils down to:
-Put it all in a TIPS ladder: will automatically mature and settle to money market account, but if we don't need the money, each year will have to figure out how to reinvest it at that point, with the risk that entails.
-Put the remaining 2/5ths in I Bonds: requires gifting action each year; once gifted, can let it sit until needed, without reinvestment risk. But it ties up a lot of capital which may be difficult to access in the unlikely event we experience desperate financial need.
What else should I be thinking about?
And this is the context:
-22 years brings us both to the end of our expected lifetimes.
-Spouse has difficulty understanding finances, so simplicity is important.
-We both have defined benefit pensions with COLA. Those and social security are more than enough to maintain our current standard of living, even with assuming a 20-25% haircut on social security.
-We also have about 24X annual expenses invested. About half of that is in a combination of US and international stock index funds. The other half will be in the TIPS/I Bonds.
-House is paid off and the equity in it will be used to fund long-term care if/when it is needed.
-No kids or younger relatives, so not looking to leave an inheritance.
Thanks all, for sharing your thoughts on this.
I have already built a 22 year TIPS ladder that produces 3/5ths of the income needed. Now I'm trying to figure out the best mix of TIPS/I Bonds for the remainder. Do I build out the remaining 2/5ths in TIPS, or in I Bonds using the gift strategy (in which we would gift each other 10K for each of the 22 years--purchased this spring while the fixed rate is relatively high)?
For us, I think the choice boils down to:
-Put it all in a TIPS ladder: will automatically mature and settle to money market account, but if we don't need the money, each year will have to figure out how to reinvest it at that point, with the risk that entails.
-Put the remaining 2/5ths in I Bonds: requires gifting action each year; once gifted, can let it sit until needed, without reinvestment risk. But it ties up a lot of capital which may be difficult to access in the unlikely event we experience desperate financial need.
What else should I be thinking about?
And this is the context:
-22 years brings us both to the end of our expected lifetimes.
-Spouse has difficulty understanding finances, so simplicity is important.
-We both have defined benefit pensions with COLA. Those and social security are more than enough to maintain our current standard of living, even with assuming a 20-25% haircut on social security.
-We also have about 24X annual expenses invested. About half of that is in a combination of US and international stock index funds. The other half will be in the TIPS/I Bonds.
-House is paid off and the equity in it will be used to fund long-term care if/when it is needed.
-No kids or younger relatives, so not looking to leave an inheritance.
Thanks all, for sharing your thoughts on this.
Statistics: Posted by Ret2018 — Thu Apr 04, 2024 11:29 am — Replies 2 — Views 190