Question for RMD'ers with predominantly bond IRAs

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friar1610
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Question for RMD'ers with predominantly bond IRAs

Post by friar1610 » Thu Sep 13, 2018 11:09 am

Our modest IRAs are currently 100% VG Total Bond fund and we are >70.5 and thus taking RMDs. With intermediate bond fund values down a bit and MM fund interest rates up a bit due to rising interest rates, I've been thinking about moving the next couple of years worth of RMDs to a MM fund within the IRAs. Or to an ultra-short term bond fund. Goal would be to protect against further potential erosion of Total Bond values over the next few years in the face of (possible) further interest rate increases. Has anyone (taking RMDs) who otherwise would hold predominantly intermediate bonds in their IRA done or thought about the same? Pros and cons?
Friar1610

Cheryl604
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Re: Question for RMD'ers with predominantly bond IRAs

Post by Cheryl604 » Thu Sep 13, 2018 12:09 pm

I am far from RMDs but recently helped my mom rebalance her portfolio. She went 40/60 stocks and MMA. She did not want to invest in any bonds at all, since recent returns show they are down - so she has no bond funds. This allocation is what will help her sleep at night.

The debate "to bond fund, or not to bond fund" is often held on these boards, by people much smarter than I, so try searching for threads with some of the different opinions out there. In my mom's case, switching a large portion to MMA made sense since she's no longer trying to grow her wealth, but preserve what dollars she has. I'm assuming you are in the same boat since you are 100% bonds already. I think moving 3-5 years of RMDs to a MMA is not unreasonable and will probably bring you peace of mind, which in itself is invaluable.

mindboggling
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Re: Question for RMD'ers with predominantly bond IRAs

Post by mindboggling » Thu Sep 13, 2018 12:43 pm

I am not taking RMDs yet, but a while back I moved a portion of my traditional IRA to a short-term bond index fund (VBIRX).
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sport
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Re: Question for RMD'ers with predominantly bond IRAs

Post by sport » Thu Sep 13, 2018 12:49 pm

The bond holding in my IRA is split between Intermediate Term Inv Grade, and Short Term Inv Grade. I have been moving my RMD to Ultra Short Term bond fund at the beginning of the year. I then use that fund for QCDs and the remainder of my RMD. Federal income taxes are withheld from the RMD. Vanguard refuses to withhold state income taxes for my state.

mhalley
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Re: Question for RMD'ers with predominantly bond IRAs

Post by mhalley » Thu Sep 13, 2018 12:59 pm

How about a cd ladder? Maybe 1-2 years in mm, then a 2-3 year ladder.

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Re: Question for RMD'ers with predominantly bond IRAs

Post by RadAudit » Thu Sep 13, 2018 1:19 pm

I'm taking RMDs. As long as it is just a few years' RMDs, I doubt if it would hurt much (loss of value vs. potential increase in income) no matter which way interest rates jump.

I too have all of my bonds in an IRA and they are targeted for the source of the RMDs now and into the future. I've SWAG'ed the % of the bonds that would be used each year for RMDs before the portfolio is rebalanced at the beginning of the following year. My optimistic guess is that moderate rate increases wouldn't materially impact the projected value / income from those funds so I just left it all in the Total Bond fund and let it ride. YMMV. You might want to run the #s for your case.
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zengolf2011
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Re: Question for RMD'ers with predominantly bond IRAs

Post by zengolf2011 » Thu Sep 13, 2018 1:40 pm

Like many of the other respondents, we keep laddered CDs and short-term bond funds representing three years of RMDs in TIRAs. Our TIRAs are primarily invested in intermediate-term bonds, but with small equity stakes. We plan to take RMDs from CDs and/or short-term bonds only if both bond and stock markets show simultaneous marked declines (thankfully hasn't happened yet). Otherwise, we withdraw from the best-performing asset. This is part of our plan to manage sequence of returns risk.

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friar1610
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Re: Question for RMD'ers with predominantly bond IRAs

Post by friar1610 » Thu Sep 13, 2018 4:39 pm

RadAudit wrote:
Thu Sep 13, 2018 1:19 pm
I'm taking RMDs. As long as it is just a few years' RMDs, I doubt if it would hurt much (loss of value vs. potential increase in income) no matter which way interest rates jump.

I too have all of my bonds in an IRA and they are targeted for the source of the RMDs now and into the future. I've SWAG'ed the % of the bonds that would be used each year for RMDs before the portfolio is rebalanced at the beginning of the following year. My optimistic guess is that moderate rate increases wouldn't materially impact the projected value / income from those funds so I just left it all in the Total Bond fund and let it ride. YMMV. You might want to run the #s for your case.

Yeah, part of me says to just stick with the Total Bond Fund and not sweat the small stuff, particularly since the IRAs are quite modest and the RMDs generally go to taxable accounts or QCDs. But the other part of me doesn't like to leave any money on the table if I don't have to.

Thanks for your response.
Friar1610

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friar1610
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Re: Question for RMD'ers with predominantly bond IRAs

Post by friar1610 » Thu Sep 13, 2018 4:50 pm

mhalley wrote:
Thu Sep 13, 2018 12:59 pm
How about a cd ladder? Maybe 1-2 years in mm, then a 2-3 year ladder.
zengolf2011 wrote:
Thu Sep 13, 2018 1:40 pm
Like many of the other respondents, we keep laddered CDs and short-term bond funds representing three years of RMDs in TIRAs. Our TIRAs are primarily invested in intermediate-term bonds, but with small equity stakes. We plan to take RMDs from CDs and/or short-term bonds only if both bond and stock markets show simultaneous marked declines (thankfully hasn't happened yet). Otherwise, we withdraw from the best-performing asset. This is part of our plan to manage sequence of returns risk.
Do you use direct or brokered CDs in the IRAs? I've always stayed away from brokered CDs in taxable but it could be a different story in an IRA, as long as the CDs are supplemented by enough MM/short term bond funds to ensure the brokered CDs can mature.

Thanks for your responses.
Friar1610

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ruralavalon
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Re: Question for RMD'ers with predominantly bond IRAs

Post by ruralavalon » Thu Sep 13, 2018 5:39 pm

friar1610 wrote:
Thu Sep 13, 2018 11:09 am
Our modest IRAs are currently 100% VG Total Bond fund and we are >70.5 and thus taking RMDs. With intermediate bond fund values down a bit and MM fund interest rates up a bit due to rising interest rates, I've been thinking about moving the next couple of years worth of RMDs to a MM fund within the IRAs. Or to an ultra-short term bond fund. Goal would be to protect against further potential erosion of Total Bond values over the next few years in the face of (possible) further interest rate increases. Has anyone (taking RMDs) who otherwise would hold predominantly intermediate bonds in their IRA done or thought about the same? Pros and cons?
We are age 73 and taking Required Minimum Distributions proportionally from each fund in my rollover IRA.

All of our bond allocation is in my rollover IRA in Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX).

I don't think it's good to have a substantial amount of money sitting in cash or a cash equivalent, which will likely produce just enough return to keep up with inflation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

zengolf2011
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Re: Question for RMD'ers with predominantly bond IRAs

Post by zengolf2011 » Fri Sep 14, 2018 1:07 am

friar1610 wrote:
Thu Sep 13, 2018 4:50 pm
mhalley wrote:
Thu Sep 13, 2018 12:59 pm
How about a cd ladder? Maybe 1-2 years in mm, then a 2-3 year ladder.
zengolf2011 wrote:
Thu Sep 13, 2018 1:40 pm
Like many of the other respondents, we keep laddered CDs and short-term bond funds representing three years of RMDs in TIRAs. Our TIRAs are primarily invested in intermediate-term bonds, but with small equity stakes. We plan to take RMDs from CDs and/or short-term bonds only if both bond and stock markets show simultaneous marked declines (thankfully hasn't happened yet). Otherwise, we withdraw from the best-performing asset. This is part of our plan to manage sequence of returns risk.
Do you use direct or brokered CDs in the IRAs? I've always stayed away from brokered CDs in taxable but it could be a different story in an IRA, as long as the CDs are supplemented by enough MM/short term bond funds to ensure the brokered CDs can mature.

Thanks for your responses.
We use CDs brokered by Vanguard in our TIRAs, laddered to enable them to mature. Due to positive returns in equities and intermediate-term bonds in recent years, we have not needed to draw on the CDs for RMDs. We simply buy a new 3-yr CD as an older one matures. When market conditions become such that we tap the CDs for RMDs, our plan is to replenish them whenever markets recover. We also maintain some short-term bonds to serve the same function. Probably doesn't make much difference.

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Re: Question for RMD'ers with predominantly bond IRAs

Post by carolinaman » Fri Sep 14, 2018 8:52 am

The concern about rising interest rates has been a major topic on this forum and other financial sites ever since rates dropped following the 2008 crisis. No one knows when that will be although some have always seen it as an imminent threat. Like a stopped clock, they will eventually be proven right. Switching to MM can deprive them of significant interest/dividends while they wait for an eventual increase in rates.

Having said that, CDs are a good alternative. One can earn 3+% on CDs right now. I am age 74 and have a 45/55 AA and currently 35% of my AA is in CDs earning 3%. Half of those will mature in the next 4 months, so I need to figure out where to reinvest that money myself. FWIW, I think CDs and Intermediate bonds are both viable options.

Most of my CDs and bond funds are in TIRAs. After RMDs, I have been using the proceeds to reinvest in VTI (total stock market index) and adjust other investments to stay in my desired AA as I prefer fixed income in TIRA when possible.

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