pkcrafter wrote:My only concern is with holding everything in a single state bond fund.
celia wrote:+1pkcrafter wrote:My only concern is with holding everything in a single state bond fund.
. . . especially when the state appears to be CA.
Is there a reason you have everything in a bond fund? Are you very risk adverse? Are you worried that your S/S benefit could be lowered?
(Our answers need to take your comfort level into account.)
I am a total finance novice. Age 69 .... Have only myself to support. With my monthly S/S plus my tax-free interest (only other source of income) from a single-state tax free municipal bond fund (been in this same fund for 20 years).
I have zero money problems; no debt whatsoever. All I am looking for is to generate enough money to live comfortably (in my simple lifestyle -- so far, it's been no problem). No debt, no major health problems, all the necessary insurance (incl. long-term care insurance). Have a little over one million dollars in this tax free bond fund; no other investments. Approximately $250k liquid (if needed).
No current need to draw any of the principle in my tax free bond fund. With all the talk about the "risk of bond funds dropping due to interest rates rising" ........ Am I nuts to continue this way; all I want to do is sustain myself till I 'bite the bullet', lol.
Any advice for this situation would be appreciated.
ourbrooks wrote:If interest rates rise, the value of your bond fund is sure to drop, at least, temporarily. The interest the bond fund pays won't drop and will eventually increase.
If you really are able to live off of just the interest, it shouldn't matter.
How long you will be able to live on just the interest is the important question. Let's assume for the sake of discussion that inflation averages a mere 2.5% over the next decade. That means that your expenses will increase by roughly 28% Will you be able to increase your withdrawals by that much?
With Social Security as your only other source of income, why are in you in a tax free municipal bond fund? You're mostly likely in the 15% tax bracket; even subtracting 15% for taxes from the yield of taxable funds, you're likely to do a lot better in a taxable fund.
A single premium immediate annuity provides payments as long as you live but your heirs don't get anything. The payout rate increases as you age; at age 70, the rates are pretty substantial. You might see how much you would have to spend to provide the same income you're getting from the bonds. You can buy SPIAs with a built-in inflation adjustment or you can keep some money in the bond fund for future inflation adjustments.
alltheway wrote:Well .... I do have a contingency 'housing plan' if anything really went downhill .... I have two now single (with no dependents) siblings who said I could reside with them, if it were ever needed. So, that's one large living expense off the table.
Yes, I am adverse to risk.
Regarding possibility of withdrawing your calculated "28% amount" as add'l expenses yearly from principle .... I believe I could continue that with no problems.
If any health disaster befalls me, I would hope it will be funded by my long term care insurance policy.
alltheway wrote:Am I nuts to continue this way; all I want to do is sustain myself till I 'bite the bullet', lol.
retiredjg wrote: Your SS is taxed according to how much other income you get. If you have no other income, very little of your SS is taxed. If you have a lot of other income, 85% of your SS is taxed. So adding income can mean less money to spend.
I don't know if the "income" from your muni counts here. It is income, but not taxed.
http://www.bogleheads.org/wiki/Taxation ... y_benefitsThe relevant income for Social Security taxation includes all items which are normally part of your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits.
http://www.ssa.gov/planners/taxes.htmYour adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your "combined income"
retiredjg wrote:Thanks SS Siri! So that means that the percentage of SS which is taxed would not go up or down as the result of switching from tax-exempt bonds to taxable bonds. So that eliminates an argument against taxable bonds, but I'm still not convinced that taxable bonds are better for this situation, at this time anyway.
Dandy wrote:A word on being so risk averse. My late mother in law had almost all her money in CDs. She was very risk averse. Other than a small Social Security payment she lived off the CDs. That was great when short term CD rates were 5% or so. But as they dropped so did most of her income. Her "safe" CDs dropped her income steadily until she was lucky to get 1 or 2%. Not only was her income dropping from lower CD interest she had to start spending some of the CD money when it matured. A double hit - lower income and smaller amount in CDs earning that lower income. How safe was that strategy??
Maybe someone will be kind enough to post the link to the website where you can compare different fixed annuities.
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