Bridge Building [income for the years before Social Security]

[FriedOkra]

She is 47, and I am 56, and our plan is to both retire when I turn 65. I understand the general principle of building a bridge from quitting your job "retirement age" to ideal collecting social security "retirement age" (68, in my case, per OpenSocialSecurity), typically using a ladder of TIPS or treasuries, in order to ensure that you aren't drawing down from the active market to fund those limbo years in the midst of a downturn.

But how soon should one begin building that bridge? We're at T minus nine years right now, and 10-year treasuries are around 4%. That said, I don't want to take money out of the market for the bridge too soon and miss out on the natural growth that should occur there in the interim. To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

Any recommended reading on these strategies?

[Title clarified by moderator Kendall.]

[niagara_guy]

You will get different opinions here from different folks. One opinion is that money you need in 5 years should not be in stocks. I take more risk that most on this forum (money in stocks) I think, but that's just me. If you have enough that you could afford a major dip in the market then maybe being more aggressive would be ok, pick something you are comfortable with.

[Sandtrap]

She is 47, and I am 56, and our plan is to both retire when I turn 65. I understand the general principle of building a bridge from quitting your job "retirement age" to ideal collecting social security "retirement age" (68, in my case, per OpenSocialSecurity), typically using a ladder of TIPS or treasuries, in order to ensure that you aren't drawing down from the active market to fund those limbo years in the midst of a downturn.

But how soon should one begin building that bridge? We're at T minus nine years right now, and 10-year treasuries are around 4%. That said, I don't want to take money out of the market for the bridge too soon and miss out on the natural growth that should occur there in the interim. To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

Any recommended reading on these strategies?

To OP:
While there can be concepts, "rules of thumbs", etc. . each person's financials are unique, and planning a long term financial strategy to fit "your" needs must be comprehensive and include; estate planning, medical insurance concerns (ACA vs Medicare eligibility), et al.

It would help greatly to post your question within the context of "your" portfolio review to get comprehensive input that applies to "you" without having to make a lot of "rule of thumb", "one size fits all" assumptions, etc.

Like this:
You can edit your original post to include this data using the "pencil icon".
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

As far as reading: (amazon softcover) W. Bernstein: "Ages of the Investor: Life Cycle Investing".

to OP:
I hope this helps you.
j

[Kenkat]

How long does the bridge need to be? Is it just 3 years, from 65 to 68?

[FriedOkra]

She is 47, and I am 56, and our plan is to both retire when I turn 65. I understand the general principle of building a bridge from quitting your job "retirement age" to ideal collecting social security "retirement age" (68, in my case, per OpenSocialSecurity), typically using a ladder of TIPS or treasuries, in order to ensure that you aren't drawing down from the active market to fund those limbo years in the midst of a downturn.

But how soon should one begin building that bridge? We're at T minus nine years right now, and 10-year treasuries are around 4%. That said, I don't want to take money out of the market for the bridge too soon and miss out on the natural growth that should occur there in the interim. To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

Any recommended reading on these strategies?

To OP:
While there can be concepts, "rules of thumbs", etc. . each person's financials are unique, and planning a long term financial strategy to fit "your" needs must be comprehensive and include; estate planning, medical insurance concerns (ACA vs Medicare eligibility), et al.

It would help greatly to post your question within the context of "your" portfolio review to get comprehensive input that applies to "you" without having to make a lot of "rule of thumb", "one size fits all" assumptions, etc.

Like this:
You can edit your original post to include this data using the "pencil icon".
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

As far as reading: (amazon softcover) W. Bernstein: "Ages of the Investor: Life Cycle Investing".

to OP:
I hope this helps you.
j

While I appreciate the spirit of your request for the portfolio recap, there is a separate thread with our information from about 10 days ago, and I didn't want to clutter the board with all of that again.

My question in this thread is really about where to read more on different strategies for managing the bridge problem, including when the conventional wisdom says to begin building that bridge. Thank you for the Bill Bernstein suggestion.

If the forum/readers of this thread really want to see all of our detailed info again, I am happy to repost it via an edit to the OP.

[FriedOkra]

How long does the bridge need to be? Is it just 3 years, from 65 to 68?

Probably? Other possibility is a wide bridge from my age 65 to 68 that narrows to two lanes for 68 to 72 (when tax-deferred drawdowns have to start). Her ideal social security age is not until I am 79 (age 70 for her).

I should probably mention that we are maxing ($20K) I-bonds each year starting last year, so we will have about $200K plus accrued interest stashed there by my age 65. That definitely could cover expected expenses for those first three years, but I'd been hoping to have the I bonds run a bit longer than that.

[NiceUnparticularMan]

In theory you can start buying rungs on your ladder up to 30 years out.

In practice, companies like DFA start buying LT IP bonds at about 20 years out in their Target funds. So they have waited a few years before they theoretically could have started,

The glidepaths used by companies like DFA are determined from optimizing across a variety of considerations and I personally think that is probably adequate in a tax-protected account.

In your case--you are looking at just a three-year ladder from age 65 to 68, starting 9 years from now?

I'd have no problem just buying that all right now.

[FriedOkra]

In theory you can start buying rungs on your ladder up to 30 years out.

In practice, companies like DFA start buying LT IP bonds at about 20 years out in their Target funds. So they have waited a few years before they theoretically could have started,

The glidepaths used by companies like DFA are determined from optimizing across a variety of considerations and I personally think that is probably adequate in a tax-protected account.

In your case--you are looking at just a three-year ladder from age 65 to 68, starting 9 years from now?

I'd have no problem just buying that all right now.

Thank you!

[Jack FFR1846]

I am retiring in a matter of months and DW left her job last year. I have been cash funding our high yield savings accounts rather than funneling that money into our taxable account for about 2 years. We also have a huge cushion of US Savings bonds ($450k), so really could invest that cash, but we plan to Roth convert next year with no actual income.....well....opensocialsecurity said for DW to take it at 62, which is in May, so we'll have $19k next year. So anyways, we'll be Roth converting as much as we can, starting next year for the 3 years before I hit 70.

Certainly, we're a bit outside the box, so ok, treasuries or savings bonds work well.

[goodenyou]

How long does the bridge need to be? Is it just 3 years, from 65 to 68?

Probably? Other possibility is a wide bridge from my age 65 to 68 that narrows to two lanes for 68 to 72 (when tax-deferred drawdowns have to start). Her ideal social security age is not until I am 79 (age 70 for her).

I should probably mention that we are maxing ($20K) I-bonds each year starting last year, so we will have about $200K plus accrued interest stashed there by my age 65. That definitely could cover expected expenses for those first three years, but I'd been hoping to have the I bonds run a bit longer than that.

The RMD age changes from 73 to 75 in 2033 based on SECURE 2.0. You will be 66 in 2033. Unless she is the higher earner, your likely strategy is for her not to wait until she is 70 to claim Social Security. But, SS claiming is complex.

[22twain]

there is a separate thread with our information from about 10 days ago, and I didn't want to clutter the board with all of that again.

Is this it?

viewtopic.php?t=398356

[Mike Scott]

If you have enough to buy the bridge now then you have choices to buy it all now, part of it or fund it with new money as you go. I am starting a bridge fund and it will be funded along the way as I get new funds.

[miket29]

To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

An article addressing this from the wiki is at https://www.bogleheads.org/wiki/Investi ... m_timeline

In the end, though, there is no "ideal" portfolio. It comes down to a tradeoff between (to use loaded words) greed and fear. Market investments have greater potential for growth but may drop in value. Bonds can give you certainty of return. If you look at rolling returns such as https://www.thebalancemoney.com/rolling ... ns-4061795 you'll see that over even 5 and 10 year periods the market has at times had a net loss, although usually it has a gain.

If it was me I'd put 1/3rd in the market with a holding period planned to be about 5 years. At 4% growth the bonds you mention will gain almost 50% in 10 years, nothing to sneeze at and so much better than the return a year ago! I'd be more comfortable in TIPS to avoid inflation risk even though the real return is much less. But plenty of other choices.

[Leif]

It was 10 years for me to build the bridge. I started with an AA of 70/30. I reduced my equity AA 2% per year. Sometimes that generated money that I placed in a CD. Sometimes the market did the AA adjustment for me and I had no money to add to my CD ladder. This is all within my taxable account.

It has worked out well for me. I believe I have enough CD's, more recently I'm using ST Treasury bills, to carry me to SS@70. Plus enough in my taxable to pay taxes on Roth conversions.

[AlwaysLearningMore]

She is 47, and I am 56, and our plan is to both retire when I turn 65. I understand the general principle of building a bridge from quitting your job "retirement age" to ideal collecting social security "retirement age" (68, in my case, per OpenSocialSecurity), typically using a ladder of TIPS or treasuries, in order to ensure that you aren't drawing down from the active market to fund those limbo years in the midst of a downturn.

But how soon should one begin building that bridge? We're at T minus nine years right now, and 10-year treasuries are around 4%. That said, I don't want to take money out of the market for the bridge too soon and miss out on the natural growth that should occur there in the interim. To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

Any recommended reading on these strategies?

[Title clarified by moderator Kendall.]

When I read posts like this I am amazed that some investors look at their future Social Security income stream with such great certainty.

[FriedOkra]

I am retiring in a matter of months and DW left her job last year. I have been cash funding our high yield savings accounts rather than funneling that money into our taxable account for about 2 years. We also have a huge cushion of US Savings bonds ($450k), so really could invest that cash, but we plan to Roth convert next year with no actual income.....well....opensocialsecurity said for DW to take it at 62, which is in May, so we'll have $19k next year. So anyways, we'll be Roth converting as much as we can, starting next year for the 3 years before I hit 70.

Certainly, we're a bit outside the box, so ok, treasuries or savings bonds work well.

That's another possibility I hadn't considered--letting the annual dividends, interest, and CGs from taxable gradually fund those cash needs as we draw closer, and thus enable the Roth conversions that I need to do (about $65K in total at present) in that window when we have no "income." Big difference, though, between the relative certainty you have in a matter of months about interest rates and the complete mystery of what they will be in nine years--thus that 4% guarantee on Treasuries is awfully tempting.

[FriedOkra]

The RMD age changes from 73 to 75 in 2033 based on SECURE 2.0. You will be 66 in 2033. Unless she is the higher earner, you're likely strategy is for her not to wait until she is 70 to claim Social Security. But, SS claiming is complex.

I had forgotten about this change; thank you for reminding me. She is the higher earner at this point (I consult, and the annual income varies wildly from year to year), and those ages are based on the current OpenSocialSecurity simulation, but I recognize that a lot can change in nine years. Still, I'm just trying to make something resembling a plan for those bridge years.

[FriedOkra]

there is a separate thread with our information from about 10 days ago, and I didn't want to clutter the board with all of that again.

Is this it?

viewtopic.php?t=398356

Yes, although there are some important changes. (Intermediate and Long Muni funds in taxable, for example, instead of the bond fund combination I listed.)

[FriedOkra]

To be clear, I am not trying to market time; I just don't know what the conventional Boglehead wisdom is on the best approach to this problem.

An article addressing this from the wiki is at https://www.bogleheads.org/wiki/Investi ... m_timeline

In the end, though, there is no "ideal" portfolio. It comes down to a tradeoff between (to use loaded words) greed and fear. Market investments have greater potential for growth but may drop in value. Bonds can give you certainty of return. If you look at rolling returns such as https://www.thebalancemoney.com/rolling ... ns-4061795 you'll see that over even 5 and 10 year periods the market has at times had a net loss, although usually it has a gain.

If it was me I'd put 1/3rd in the market with a holding period planned to be about 5 years. At 4% growth the bonds you mention will gain almost 50% in 10 years, nothing to sneeze at and so much better than the return a year ago! I'd be more comfortable in TIPS to avoid inflation risk even though the real return is much less. But plenty of other choices.

Thank you for the link and the analysis!

[FriedOkra]

It was 10 years for me to build the bridge. I started with an AA of 70/30. I reduced my equity AA 2% per year. Sometimes that generated money that I placed in a CD. Sometimes the market did the AA adjustment for me and I had no money to add to my CD ladder. This is all within my taxable account.

It has worked out well for me. I believe I have enough CD's, more recently I'm using ST Treasury bills, to carry me to SS@70. Plus enough in my taxable to pay taxes on Roth conversions.

Thank you for sharing your approach. I have about $120K in realized capital losses in taxable right now, so I have some room to implement the equity reduction strategy you mention without creating tax implications. And I have dividend and capital gain reinvestment turned off there to generate cash as those come in.

[Leif]

It was 10 years for me to build the bridge. I started with an AA of 70/30. I reduced my equity AA 2% per year. Sometimes that generated money that I placed in a CD. Sometimes the market did the AA adjustment for me and I had no money to add to my CD ladder. This is all within my taxable account.

It has worked out well for me. I believe I have enough CD's, more recently I'm using ST Treasury bills, to carry me to SS@70. Plus enough in my taxable to pay taxes on Roth conversions.

Thank you for sharing your approach. I have about $120K in realized capital losses in taxable right now, so I have some room to implement the equity reduction strategy you mention without creating tax implications. And I have dividend and capital gain reinvestment turned off there to generate cash as those come in.

I had similar circumstances. After 08/09 I had tons of TLH, so selling was not an issue for me tax wise. Of course, in retrospect, it would have been better to keep my equities longer. But I'm a conservative investor, so I used a longer glide path.