Bond funds in retirement

[drspine]

Just retired (DW as well) and will start our "formal" withdrawal strategy in January. I am 69 DW is 67. Both collecting SS. Planning on an approximate 25 year retirement. Want to keep things very simple - withdraw "paycheck" from MMF to checking every month and then replenish and rebalance, perhaps every quarter or semi-annually. I thought the bond fund portion of our 60/40 AA portfolio was fairly straight forward - approx. 40% in Fidelity Intermediate Bond (FTHRX) in my IRA, 40% in Vanguard Inter. Bond (BIV) in DW's IRA and 20% in Fidelity Total Bond (FTBFX) in taxable account. However, after reading articles as well as threads on this forum re: TIPS, TIPS ladders, duration matching and other topics I never heard of, I am having second thoughts. Is having all intermediate bond funds a mistake? I don't have any planned upcoming liability (trip around the world, major home renovations etc.) where I need a certain amount of money at a specific time. Like I said, I will be either selling or purchasing bond funds starting in the next few months depending on the markets and then rebalancing (at least that's the plan). The process will continue throughout retirement. Should I be considering shorter term funds (for example exchanging FTHRX in my IRA for Vanguard ST treasury VGSH)) or in the grand scheme of things, it wouldn't make much difference? If I should, does it matter which funds I sell from first - short or intermediate? I realize ST funds are less sensitive to interest rate fluctuations so maybe I should have a little of both? Thanks for any insights.

[Wanderingwheelz]

No, having an investment grade intermediate bond fund isn’t a mistake. For the most part, it doesn’t make much difference what you decide to hold in your fixed income portfolio, as long as you don’t go too far out in duration or too low in quality.

I have no problem owning an intermediate bond fund and some money market for my fixed income.

[grok87]

Just retired (DW as well) and will start our "formal" withdrawal strategy in January. I am 69 DW is 67. Both collecting SS. Planning on an approximate 25 year retirement. Want to keep things very simple - withdraw "paycheck" from MMF to checking every month and then replenish and rebalance, perhaps every quarter or semi-annually. I thought the bond fund portion of our 60/40 AA portfolio was fairly straight forward - approx. 40% in Fidelity Intermediate Bond (FTHRX) in my IRA, 40% in Vanguard Inter. Bond (BIV) in DW's IRA and 20% in Fidelity Total Bond (FTBFX) in taxable account. However, after reading articles as well as threads on this forum re: TIPS, TIPS ladders, duration matching and other topics I never heard of, I am having second thoughts. Is having all intermediate bond funds a mistake? I don't have any planned upcoming liability (trip around the world, major home renovations etc.) where I need a certain amount of money at a specific time. Like I said, I will be either selling or purchasing bond funds starting in the next few months depending on the markets and then rebalancing (at least that's the plan). The process will continue throughout retirement. Should I be considering shorter term funds (for example exchanging FTHRX in my IRA for Vanguard ST treasury VGSH)) or in the grand scheme of things, it wouldn't make much difference? If I should, does it matter which funds I sell from first - short or intermediate? I realize ST funds are less sensitive to interest rate fluctuations so maybe I should have a little of both? Thanks for any insights.

I think it is worth looking at the allocation of the Vanguard retirement income fund
https://investor.vanguard.com/investmen ... file/vtinx
30% Global Stocks
53% Global Nominal Bond Indexes
17% 0-5 year tips

So why 0-5 year tips. well as Einstein once said, everything should be as simple as possible but not simpler.
here is Vanguard's white paper as to how they constructed their target retirement funds. They also believe in keeping things simple and rejected things like commodities etc. Here is their case for including short term tips in a retirement portfolio

Short-term Treasury Inflation-Protected
Securities (TIPS)
A downward-sloping glide path ensures that throughout their lifetime, investors will balance
stability and growth. In most cases, their wages can be seen as a recurring bond coupon, providing
stability. Hence, balance is achieved by changing the risk taken in their financial capital. Entering
the retirement phase, the typical investor’s human capital is much smaller than their financial
capital. This would make it prudent to reduce their overall equity exposure. To mitigate
exposure to short-term inflation shocks at the same time, we allocate an increasing proportion
of bonds toward short-term TIPS, which have a much higher inflation beta than U.S. bonds, as
shown in Figure 6. Inflation beta represents how reactive or variable the asset is to unexpected
inflation. A well-correlated asset with high inflation beta can be a good choice to help secure
spending from the portfolio

Basically what they are saying is that the "spending down" phase is different than the "accumulation" phase. and that short term tips are important to "help secure spending" once you start drawing down from your portfolio.
cheers,
grok

[delamer]

Having several years of needed withdrawals in short-term Treasuries (or other cash equivalents) is a good idea. If you’ll need to withdraw $15,000/year from your portfolio to cover expenses, then holding $60,000-$75,000 in cash equivalents will reduce concerns about stock market drops or increases in interest rates.

Here’s some additional food for thought: https://www.mymoneyblog.com/william-ber ... bonds.html

[drspine]

Thanks to all. Much to consider.