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Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 11:19 am
by Ckprocker
How would you put together a 5 year Bridge plan in retirement before you begin taking Social Security?

As an example, I'm thinking of calculating what my Social Security would be each year and putting that amount into a CD Ladder. If I needed 40k a year then make sure I have 160k in CD’s to cover the Floor along with 40k my first year in a high interest saving account along with Four 40k CD’s for each of the years 2,3,4 and 5.

What other methods would make sense?
Thanks

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 11:59 am
by BarbBrooklyn
Laddered 6 month T bills with 6 months of expenses X 4 years.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 12:16 pm
by Nestegg_User
That’s basically right...
I’ve just used two year CD’s for the later, due to not having a premium for longer terms, and will roll those into longer CD’s if the interest rates go up enough or just match to duration needed. (We haven’t even used much of any of the CD’s for the last two years... so likely will roll into a longer term and use the residual to cover one year of spend.) Prefer CD’s to bond funds right now since we want to preserve the value and with interest rates on the (slight) rise the funds have been dropping slowly. Treasuries could be bought to cover some as well, but just like CD’s, I haven’t found durations over either two or three years to make sense.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 12:52 pm
by CRTR
Money market, Treasuries, CDs or a SPIA are the usual candidates.

At current rates, CDs are the winner. 3 & 4 year new issue CDs are widely available at over 3.25%. 2 years >3.0%. I don't think Treasuries are over 3% yet until you get to 5 years. 5 year term certain SPIA rates are lagging right now too

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:12 pm
by delamer
If Social Security won’t cover all your expenses, then I’d put your your total expense amount in cash equivalents not just Social Security.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:16 pm
by Ckprocker
delamer wrote:
Mon Nov 12, 2018 1:12 pm
If Social Security won’t cover all your expenses, then I’d put your your total expense amount in cash equivalents not just Social Security.
Are you saying for example, if you need say 70k a year for those 5 years and S.S. covers 40k per year, then put the extra 30k a year or 150k into Money Market type funds, short term bonds etc?

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:24 pm
by SGM
I put four years expenses into a 7 year savings annuity paying tax deferred interest. Initially it was paying 4% and now down to 3.2%. After the first year I could take 10% per year out without penalty. After the 7th year I could take any amount out of it. Fortunately I didn't need it as other income was able to cover expenses. It acted like a tax deferred CD and could be annuitized or not at some point. I am probably going to use it for part of an SPIA ladder after DW reaches 70.

These days with interest rates moving up I would probably buy several CDs spanning a 4 year period.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:31 pm
by delamer
Ckprocker wrote:
Mon Nov 12, 2018 1:16 pm
delamer wrote:
Mon Nov 12, 2018 1:12 pm
If Social Security won’t cover all your expenses, then I’d put your your total expense amount in cash equivalents not just Social Security.
Are you saying for example, if you need say 70k a year for those 5 years and S.S. covers 40k per year, then put the extra 30k a year or 150k into Money Market type funds, short term bonds etc?
Yes.

You don’t want money that you’ll be spending within 5 years in stocks or longer term bonds.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:36 pm
by Ckprocker
delamer wrote:
Mon Nov 12, 2018 1:31 pm

Yes.

You don’t want money that you’ll be spending within 5 years in stocks or longer term bonds.
Thanks again...Which Funds would you recommend if using Vanguard for short term bond funds in that 5 year window?

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:38 pm
by TravelforFun
Ckprocker wrote:
Mon Nov 12, 2018 1:16 pm
delamer wrote:
Mon Nov 12, 2018 1:12 pm
If Social Security won’t cover all your expenses, then I’d put your your total expense amount in cash equivalents not just Social Security.
Are you saying for example, if you need say 70k a year for those 5 years and S.S. covers 40k per year, then put the extra 30k a year or 150k into Money Market type funds, short term bonds etc?
You would need $70k a year for 5 years, then $30k a year thereafter. So $350k would need to be put aside in CD, bonds, money market, or savings to cover the 5 years. Then you would need between $750k (4% SWR) to $1 million (3% SWR) in investment to supplement your SS.

TravelforFun

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:39 pm
by badger42
It depends on your time horizon.

If you're talking about the next 5 years, the CD ladder is great.

If you're talking about 5 years but 20 years out, I would seriously consider TIPS for the inflation protection.

Re: Creating a Bridge to Social Security

Posted: Mon Nov 12, 2018 1:47 pm
by delamer
Ckprocker wrote:
Mon Nov 12, 2018 1:36 pm
delamer wrote:
Mon Nov 12, 2018 1:31 pm

Yes.

You don’t want money that you’ll be spending within 5 years in stocks or longer term bonds.
Thanks again...Which Funds would you recommend if using Vanguard for short term bond funds in that 5 year window?
I don’t invest much in bonds except TIPS. I prefer cash (CDs, money market funds)

Maybe someone else will have suggestions.