Retiring With Extreme Low Interest Rates

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The COVID-19 pandemic has caused financial chaos. Many eyes are focused on the stock market, massive government spending programs, and oil prices. Are we underestimating the fundamental change that will have the biggest long term financial impact for retirees?

falling interest rates

As of May 8th, 2020, the interest rate on 10 year treasuries is .63%. The 20 year treasury rate this same date is a paltry 1.05%. Your reward for tying up your money for 30 years? 1.31%. 

These rates are all time lows. If the economy needs further stimulus, Americans could soon see interest rates on treasuries go negative for the first time ever. Other major economies in Europe and Asia are already there.

This is a fundamental shift. Do bonds make any sense in this environment for a retiree who needs income? If not, what are your alternatives?

Traditional Roles of Bonds

There are three “truths” about bonds that make them staples in most investment portfolios. Let’s review them before we go any further.

“Truth” 1: Bonds Provide Income

Most retirees and institutional investors use bond interest as a relatively safe and reliable way of creating passive income. This is a simple concept that almost everyone understands. 

You loan your money to a government or corporation. A bond is a promissory note to pay back your principal plus a defined premium for the use of your capital.

“Truth” 2: Bond Values Increase When Stock Values Decrease

Interest rates are often lowered to stimulate economic activity in times of financial crisis. When interest rates drop, existing bonds with higher rates become more valuable. The longer the bond duration and the larger the interest rate drop, the more valuable existing bonds become.

Having an asset not closely correlated to stocks, even if it is highly volatile like a long term bond, can decrease overall portfolio volatility. Selling appreciated bonds creates another way to produce income when stock prices are down. It also allows you to buy more stocks at depressed prices when rebalancing your portfolio. Thus bonds provide diversification to stocks.

“Truth” 3: Short and Intermediate Bonds Provide Stability

High quality short and intermediate term bonds are far less volatile than stocks. They can prevent catastrophic drawdowns during major stock market crashes. They are also not as vulnerable to interest rate increases as are bonds which have longer durations. 

The shorter the duration and higher the quality of your bonds, the more stable they are. This is another diversification benefit that bonds provide.

Reexamining Bonds In An Extreme Low Interest Rate Environment

When you understand these principles, it’s clear why bonds have been a cornerstone to a diversified investment portfolio. These “truths” have held well over the past 40 years as interest rates have dropped in a mostly linear fashion from all time highs to all time lows. 

This is all many investors have ever known. With current interest rates near zero, it is worth stepping back to reexamine the role of bonds.

Bonds Income When Rates Are Extremely Low

The idea of lending your excess money and collecting interest is at least as old as biblical times. It was one of the earliest financial concepts I remember learning as a child, and one I’m currently teaching my seven year old to incentivize her to save.

Joe Weisenthal does a good job explaining that in current times there is more money than worthwhile places to deploy it. Cash needs to be stored. 

You could store money in your home where it is at risk of fire, theft, etc. Or just like a classic car, fine art work, or gold coins that provide no financial value until you transact them, you can pay to store your money.

If rates go negative, a bond adds an expense you have to support in retirement. Buying negative yielding bonds is the equivalent of renting a storage unit for your cash.

With low rates the past decade, most bond investors have already accepted that their bond interest won’t meet their spending needs. Even a conservative withdrawal rate of 3% won’t be met by bonds yielding 1-2% without selling off principal. And that ignores the effects of inflation that make those interest payments less valuable over time.

Ben Carlson recently pointed out how absurdly low the income currently produced by bonds is compared to historical standards. If rates go negative in the US as in other industrialized nations, it will completely disprove our first “truth” about bonds.

Volatility and Speculation When Rates Are Extremely Low

As I’ve been pondering the second “truth” about bonds, several people pointed me to an article from the website Portfolio Charts. It argues for the Benefits of Bond Convexity

The article demonstrates two key mathematical points about bonds when interest rates are low. First, long bonds become more sensitive to small rate decreases. Second, risks and benefits of a change in interest rates are asymmetric. A drop in interest rates increases a bond’s value more than an equivalent increase in rates hurts it.

The article was enlightening. But it is all based on one assumption by the author. He writes:

“If I had a nickel for every time I heard someone say they think bonds are poor investments because ‘rates have nowhere to go but up’, I’d be able to buy an island! But the simple fact is that they can always go lower, and because of convexity they really don’t have to move very far at all to turn a major profit.”

This argument has worked and will continue to work… until it doesn’t. Interest rates will likely reach a floor and stall or go back up. Morningstar’s John Rekenthaler provides a different opinion, writing Long Bonds Are for Fools

Long bonds are purely speculative investments in this environment. Admittedly, I’ve been wrong speculating how low the floor for interest rates could go since I got serious about investing. In early 2013, interest rates were at (then) all time lows of about 2% for 10 year, 2.7% for 20 year, and 3% for 30 year treasuries.

Rates could continue to fall even lower than current all time lows. If they do, the second truth will hold. When we eventually reach a floor where they don’t, long bonds will get crushed.

Stability When Rates Are Low

The good news is the third truth holds well. Short-term U.S. treasuries continue to be a safe place, insulated from the wild gyrations of the stock market and largely immune to interest rate risk. So why not just shift all your bond holdings to short term treasuries?

The cost of devoting a large portion of your portfolio to these risk free assets is giving up income as well as potential for price appreciation. A retiree’s spending would come almost entirely from depleting principle.

Inflation will likely diminish the spending power of your money. This strategy guarantees you’ll eventually run out of money unless you have enough that you’ll run out of life first.

Going to short-term treasuries only for the short term introduces different challenges of trying to time interest rate changes. This is at least as hard as trying to time the stock market. 

If the 30 year yield drops another percent, would you then accept that maybe “rates can always go lower”? That would mean getting back into long bonds after they’ve gotten even riskier and you’ve missed tremendous gains. 

What if long bond rates go up by 1% per year over the next two years. That would put the 30 year yield at 3.3% which is still more than 1.5% below long-term averages. Rates would be trending upward. Would you feel good buying long bonds then? 

There are no easy answers.

What Are the Alternatives?

Low interest rate environments create a challenge for people looking to retire. This is not new. Todd Tresidder wrote about the Great Bond Bubble in March of 2013. 

I’ve shared my portfolio which is light on bonds and written about strategies external to a traditional investment portfolio to address low interest rates and high stock valuations. 

Few people predicted that we’d go from an already historically low interest rate environment in the early 2010s to a more extreme low interest rate environment in the early 2020s. 

There is no single magic bullet for dealing with current extreme low interest rates. Having been dealing with already low rates over the past decade, we have to continue with more of the strategies we’ve already been considering.

More Risk In Your Portfolio

Respected experts may bristle when they see adding risk as the first strategy. The reality is, there’s no alternative. 

I’ve already focused on the increased inflation risk and interest rate risk as well as most people guaranteeing they won’t meet spending needs when choosing U.S. government treasuries with extremely low yields. 

High quality corporate and municipal bonds offer more yield. Junk bonds offer even higher yields. 

That’s because they come with higher default risks in addition to the risks of securities. These  risks are more apparent now given the economic uncertainty created by the pandemic.

Another strategy to create more income is investing in real estate investment trusts (REITs) for their higher yields. However, REITs are typically highly leveraged, so they are more volatile than bonds in normal times. 

These are far from normal times. Regional mall REITs were down over 60% and lodging/resorts were down over 50% in the most recent quarter according to the website Nariet.

Gold has been proposed to be a better diversifier to stocks than bonds in this extremely low interest rate environment. Still, gold is highly volatile and creates no income.

Cryptocurrencies have the same issues as gold with volatility and producing no income. They also lack gold’s history of increasing in value when panic reigns.

Giving stocks a higher allocation of the portfolio is another option. This provides a reasonable hypothesis for why stocks have fared reasonably well so far this year. 

Investors may be chasing dividend yields and potential for price appreciation, both of which are greater than yields and upside potential of bonds. However, this is likely making already volatile stocks even riskier than usual.

Whether we want to take on more risk or not, we have no choice. All asset classes are more risky with rates at extreme lows. We simply have to pick our poison.

More Emphasis On Social Security

We can look external to our traditional portfolios to offset some of the risk. One big lever that traditional retirees can pull is optimizing their social security claiming strategy.

It may seem intuitive to claim Social Security sooner if your portfolio is currently down, giving your investments time to recover. Mike Piper and Christine Benz each have recently written compelling arguments for why that is likely a bad idea.

Tools that may be useful in helping make the best decision considering your specific circumstances are Piper’s Open Social Security calculator to maximize your benefit and our affiliated Pralana Gold retirement calculator to see how this decision impacts your overall financial situation.

More Work

Early retirees or younger traditional retirees may not have the option or desire to claim social security. But we have a major advantage that many traditional retirees don’t have: the ability to earn more money.

There are people who still push back against the idea of working in retirement. Extreme low interest rates may make people rethink that position.

In a post on choosing your safe withdrawal rate, Darrow highlighted the impact of earning $1-2K/month from a hobby business or part-time work in retirement. Compare the effort it would take to earn that much income versus the amount of capital you would need to accumulate to create that income from bonds in the current low interest rate environment.

The current yield on a ten year treasury is .63%. It would take about $1.9 Million to create $1K/month and $3.8 Million to produce $2K/month at that rate of return.

Another option that could create more income is investing in real estate. This would require more work and has different risks than traditional stock and bond investments. In this interest rate environment, the risk and effort may be worth your time.

More Focus on Spending

Optimizing social security and working more focus on the income side of the retirement equation. Retirees also can decrease the amount of money they spend from their portfolio.

The same principles that enable you to lower your spending on the way to financial independence apply in retirement. If you want to reduce your expenses, it is best to address your largest areas of spending that deliver the greatest benefits.

Housing and Transportation

For most people that means looking at housing. Carrying a mortgage may seem like an intuitive decision with mortgage rates being very low. A quick search of current mortgage rates shows that a 30 year mortgage is about 3.5% and a 15 year mortgage is about 3.0%. 

Long-term investors should be able to get returns greater than this over thirty years. But what about over the next 10-15 years, when retirees need income and face sequence of returns risk?

It’s highly unlikely you’ll obtain a 3% return from bond investments in the next decade. More stocks mean more volatility and greater sequence of return risk with no guarantee of returns. Paying off your mortgage to eliminate this expense may make sense.

Downsizing your house can also offer considerable savings. You can decrease two major expenses simultaneously if you also move to a location that allows you to eliminate a vehicle or otherwise decrease transportation expenses.

Taxes and Healthcare

Taxes and healthcare costs are large expenses that can be reduced with good planning. For early retirees planning to buy insurance through the ACA, this planning overlaps. 

ACA premium tax credits drastically impact what you pay for insurance. The subsidies are based on your Modified Adjusted Gross Income, giving more incentive to decrease your income needs.

Roth IRA conversions are another consideration that can decrease your overall tax burden, particularly if you convert when stocks are down and tax rates are low. It is also worth considering the impact of drawing from Roth, tax-deferred and taxable investments in different amounts and sequences.

All these decisions are complex and could impact one another. Having a tool like the Pralana Gold Retirement Calculator or working with an expert on tax planning can help you piece together this complex puzzle to optimize your personal situation.

More Money to Retire

These solutions may not be attractive to you. Few people want the stress of taking on more investment risk in retirement. 

Doing some work in retirement can have benefits that extend beyond the financial gains. Work can provide purpose and meaning that many people struggle with in retirement. Still, it is different choosing to do work you want versus having to hustle to make ends meet.

Trying to squeeze more dollars out of government programs or cutting spending on things you find important in order to save money in retirement is not appealing to many people.

The other option is to simply save more. Conventional wisdom has been that a 4% withdrawal rate is safe for a 30 year retirement, a bit less for early retirees

I despise doom and gloom scenarios.The research the 4% rule is based on encompasses extreme conditions that include the Great Depression, world wars, periods of high inflation, and massive societal and technological changes. 

One thing we’ve never seen are interest rates this low. There is no precedence. Retirement researcher Wade Pfau sees “3% being a lot more realistic than 4% as a sustainable strategy in a low interest-rate environment” for a 30 year retirement timeframe. That number may be even lower for early retirees.

Deciding whether you have enough money to retire securely means embarking on an experiment with a sample size of one. Failure is not an option.

If you are unwilling or unable to be flexible and creative with spending and earning in retirement, the alternative in these challenging times is to work longer and save more to create the secure retirement you desire.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at chris@caniretireyet.com.]

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29 Comments

  1. While I do keep some monies in an intermediate-term tax-exempt mutual fund (only because there is no ETF equivalent yet at Vanguard), my preference is to go the route of dividend paying stocks. While I have incurred cutbacks on some dividends, for someone looking now there are excellent values in fairly safe dividend payers like utilities and telecoms. As you point out, with rates so low on bonds it almost isn’t worth the risk of putting monies into them for anything other than short-term safekeeping. Good luck to all.

    1. ChuckY,

      I don’t personally try to pick stocks and I would have no idea what is low risk or good value on a high dividend stock. But I am taking on more risk in my portfolio by setting a lower allocation to bonds and instead allocating that money to a variety of stock indexes and REITs that I feel are better bets over the long haul. In my eyes, we’re both making the decision to allocate less money to bonds than traditional portfolios. That just means we need to acknowledge we’re taking on more risk and plan accordingly.

      Best,
      Chris

  2. What are your thoughts on Preferred Stocks? I am equally invested between fixed rate cumulative preferred stocks purchased below PAR and fixed/floating rate preferreds that offer interest rate protection due to their floating feature.

    1. See my response to ChuckY. Similarly, I don’t personally invest in Preferred Stocks. Again, I’m not saying it is any better or worse than my strategy. Just that we have to acknowledge that these are not bonds and so it is a way of chasing better overall returns and/or higher yields and as such they come with higher risk than bonds traditionally do and also a different risk profile.

      Best,
      Chris

  3. I didn’t read the article yet, but since you mention SS, it could be a great topic to explore deeper. Perhaps even approach Mike Piper to ask to write an article or have an interview and explain SS in simpler terms.
    I didn’t have any suspicion until last week’s visit to BH forum where I found out that one’s birth year plays a big role in regards to the (final?) SS benefit calculation. It’s too hard for me to understand at the moment but people who turn 6o this year and maybe next year will have SS amount up to 15% lower thanks to economic problems we’re having in 2020. It will not be known how much exactly until October next year.
    So, this made me think that FIRE people like to estimate their future SS benefits but to be safe, it’s a good idea to cut it another 15% in addition to 20-25% that the gov’t might cut in order to continue paying SS benefits after 2030-2034.
    I wish I understood this topic better but OTOH you cannot choose your birth year either.

  4. Another fantastic article, Chris and great timing! I’ve been trying to solve this puzzle myself, as I’m currently heavy in cash (high-yield money market) in my retirement portfolio and looking to shore up my asset allocation in the non-equities area. I expect to semi-retire next year.

    I’ve been wondering about something like a total international bond fund, such as Vanguard’s BNDX ETF. It seems that many of the other developed countries are on the way out of this covid nightmare already, and it doesn’t feel like we’ll be there for a long time, based on how we’re currently handling it. So I wonder if it might be a better time to go more international with both stocks and bonds.

    A bit different than the focus of the article, as I don’t need it for income right now, just as something better than cash, which is returning nothing right now.

    You didn’t cover international bond funds, could you comment? Thanks!

    1. I think that high yield savings & money market accounts as well as CDs are all decent places to be at the moment. They all offer better yields than short term T-bills. The savings accounts and CDs offer FDIC insurance in most circumstances meaning the safety is comparable. You may find this interesting for more on that, though rates have come down since it was written so the exact numbers won’t be relevant. https://www.caniretireyet.com/getting-higher-returns-cash/

      I’m not much for trying to predict the future. I would say that the U.S. bonds, particularly U.S. treasuries are probably the least risky bond investment regarding default risk. Yet the Vanguard total bond fund which consists of U.S. treasuries and investment grade domestic bonds is currently yielding 1.58% while the comparable Vanguard Total Int’l bond fund is yielding .48%. I don’t see a reason to get paid less to take more risk, but maybe someone else sees this differently?

      Best,
      Chris

      1. Yes, that’s why I was a bit concerned about the bond index funds that mirror Barclay’s aggregate index. They contain corporate bonds, which causes them to somewhat trend with the stock market (I want bonds to do the opposite), and mortgage-backed securities, which scare me due to what I think will be lots of foreclosures and devalued properties ahead.

        I moved more toward a fund that’s just intermediate US treasuries, average 5 year duration. I know there’s risk there too, with the insanity of interest rates now, but as you said, there aren’t many good choices in this environment.

        1. I certainly can’t give any specific advice, but your thinking makes sense to me.

          Full disclosure. So far I’ve stuck with the Vanguard Total Bond index as the core bond holding with 10% of our portfolio and 5% in the Vanguard intermediate term tips. We recently sold large portions of both to buy more stocks when rebalancing. We also have built our cash cushion a bit larger than normal given all of the economic uncertainty. I feel comfortable continuing to buy stocks for the long haul and having cash on hand should needs or opportunities to use it arise. I’m not excited about buying more of either of our current bond holdings under the current conditions.

  5. If interest rates go down and you hold bonds in a fund or ETF doesn’t the value of the fund increase? The NAV goes up.

    1. Yes. This is why bonds have done so well over the past 40 years as rates have fallen from all time highs to current lows where they have essentially no yield.

      Two questions to ask yourself if buying bonds with these ultra-low yields for 10, 20 or even 30 years.

      1.) What if rates stay this low? Will the tiny amount of income produced be of any value to you?

      2.) What if rates go up? Are you willing to hang on to the bond that produces such little income? Are you OK selling it at decreased value when the NAV goes down?

      They only make sense if rates continue to drop from these levels.

  6. Your article did not mention TIPS . Wouldn’t an investment in TIPS at least keep you at the rate of inflation. Also some bank or credit union cds are better than treasuries right now. Do you think they deserve a look they are fdic insured and safe , isn’t this also a main reason you buy bonds safety?

    1. Mark,

      You make a good point about CDs and high yield savings accounts. To me, these make much more sense than short term bonds which yield +/- 1% less with similar security. The only downside is that you have to keep an eye on yields, and be willing to switch back and forth if bond yields increase or savings rates decrease.

      Re: TIPS. Yes I agree they make more sense in that they eliminate inflation risk. However, they already are negative so they don’t solve the income issue and they still have interest rate risk.

      I think safety is only one of three reasons most people buy bonds. In this environment, it is the only one that makes sense though IMO.

      Hope that clarifies.

      Chris

  7. It’s all about risk. If there is one thing the last 30 years has taught us… expect… or there is a guarantee of a major stock sell-off every 10 years. We’re talking 30-50% loss of principal. And if the 1960s-1970s teach us something… what if it takes 20 years to re-coup those losses? Yeah… risk-on sounds great until…. “And… It’s Gone!”

    Bonds play a role. Even in the madness of a Fed-controlled economy.

    1. I agree completely John. I think many if not most people understand that stocks are risky. I think they underestimate risk when chasing yield with riskier bonds, REITs, dividend stocks, etc. None of these are treasuries.

      That said, treasuries are riskier than usual in this environment as well.

      There are no easy answers, particularly for people who limit themselves to traditional portfolios and views of retirement.

      Thanks for chiming in.

      Best,
      Chris

  8. Thanks for another excellent post Chris!

    I agree 100% – no easy answers. It seems to me that for those like yourself with a long time horizon diversified equities are going to continue to be the main focus. Jonathan Clements summed the (non-existent) alternatives up very concisely in his most recent post:

    https://humbledollar.com/2020/05/no-alternative/

    For those already in retirement or with less ability and/or willingness to take risk (e.g. few or no part-time job possibilities) or the many who’ve “won the game” and are more scared of huge losses in their equities that they may well not live long enough to recoup, I do think some of the more defensive allocation are worth looking at. It could be as simple as 70-80% short-term and intermediate treasuries and the rest total U.S. stock market (basically a roll-your-own version of Vanguard’s retirement income fund but with much higher quality and shorter duration bonds than they use), or as complex as the Permanent Portfolio (still only 4 funds) or its Golden Butterfly variation with 40% stocks.

    The YTD performance of the 4 x. 25% PP components is an interesting case study in the bond convexity issue and also in what it means to truly own non-correlated assets. Here are the numbers using popular ETFs:

    BIL (ultra short treasury – essentially treasury MM): .41%
    TLT (long term treasuries 23.35%
    IAU (one of the better gold ETFs). 13.24
    VTI (total stock). – 11.12

    One can tilt this allocation to prosperity by upping the stocks to 40%, possibly including a slice of international and reducing the other assets to 20% each, or substitute intermediate term treasuries for the bond “barbell” (half cash, half 30 year) specificed and the historical performance is pretty similar. Not that such approaches are going to appeal to all that many folks, but I’m recalling how Bob Clyatt (author of the wonderful book “Work Less, Live More”) referred to these allocations as a “bunker” and I know that there are plenty of folks out here who don’t fit the stash-MRE’s-and-ammo-in-a-bunker stereotype who are looking for a more defensive place to be while this pandemic’s effects on the economy unfold.

    Certainly better than throwing in the towel and going to all cash paying nothing, which is also happening not just out of panic but because of even seasoned investors not being able to make sense of the disconnect between current equity valuations and an economy heading towards numbers potentially surpassing those of the Great Depression in their severity and likely duration.

    1. Kevin,

      Thanks for the feedback and for pointing me towards some interesting resources. I tend to agree with Clements idea that stocks are the least bad option. I’ve held that position for a while even when interest rates were considerably higher.

      Still, I admit I feel less comfortable having such a high allocation to stocks when I have a substantial amount to lose and little ability to save to rebuild. This is true even as bonds have gotten riskier. It is much easier to be bold during the accumulation phase when major market meltdowns actually work in your favor.

      I continue to be intrigued by alternative portfolios like the Permanent and Golden Butterfly that can prevent large draw downs. Ultimately for me, I think we need to choose investments that we believe in and will stick with through thick and thin. As much as I hate the risk of stocks, I hate allocating large amounts of capital to things that I see as speculative bets (long bonds in this environment and gold in any environment) or guaranteed losers over the long haul (cash and short treasuries). So, I think I’d be even less likely to stick with these portfolios, even though they’d be less volatile. I haven’t wavered even a little on stocks and in fact made a large purchase when rebalancing on April 1 amidst the chaos. I guess time will tell how wise that was!

      Cheers!
      Chris

  9. Great article Chris – a nice followup to our Twitter exchange a few weeks ago with Jon Luskin.

    Keep up the good work!

    1. Thanks Mark. Yes, I’ve been picking a lot of people’s brains who are smarter than me while trying to make sense of this.

  10. Thanks for the article. Perhaps on the brighter side, if you didn’t mention it, low interest rates should mean good things for home equity values, since home prices rise inversely with interest rates. You mentioned that downsizing might be a good move in your good list of moves to consider. When one does eventually sell, they’ll net more.. Inflation is also very low, which should offset some of a retirees’ income needs.

    1. I agree that RE values get inflated by low rates. Also think this is a big reason why stock valuations have risen over the past decade and still are relatively high by historical standards given the state of the world. I suppose these could be upsides of low rates that could save the day for retirees. Something I’m still having a hard time wrapping my head around.

  11. Thanks, Chris. I definitely need to look at my bond allocation at some point.

    As you mentioned, there is a lot of low hanging fruit in healthcare if you know where to look and take time to plan. ACA premium tax credits but also long term planning for mitigating risk that come in the form of large out of pocket costs that come with the original Medicare program. Thankfully, my wife is Canadian and she may have come with some long term healthcare geo arbitrage play. Time will tell for us, though, as there are a TON of tax considerations to look at with an international move like that.

    Thankfully, we are “willing and able to be flexible and creative with spending and earning in retirement”.

    I hope you are doing well, Sir. We opened up physical therapy last week. Only about 6 patients per day for each therapist to give time for cleaning etc, but its something. We have an extremely low case count in my county. Surgeries are starting up as well.

    Max

    1. Thanks for reading and taking the time to comment Max. Agree that flexibility is key in these challenging and uncertain times that we’re living and investing through.

      Just talked to my former PTA yesterday. My old clinic is down to the two therapists and a biller. All of the support staff (PTAs, ATCs, receptionists, etc have been laid off). Sad times.

  12. Good post! The trend for the stock market per Fed involvement appears to be a shorter duration with less severe downturns. Investors will migrate to more risky portfolios as a result. Also, the high national debt is working to be keeping interest rates low. So, our financial security is both safer but could be risky if federal manipulators get it wrong and the system runs wild. There isn’t much risk on the latter but the unexpected black swan event may be a concern during one’s life time of investment. Financial experts continue to comment on the crazy actions of the current system. We are in uncharted history, and as usual they have no clue.

    Low cost broad index funds continue to improve the investment status as compared to bonds as your post describes. Economic trends continue to enforce low inflation. High debt load countries will continue to enforce a low interest rate market for their benefit. Bonds do provide security but at high cost of low income. Present day, bonds have ultra low rates and now suffer much more unattractive volatility.

    Since we are currently buying bonds only for safety, does it make sense to have long duration treasury bonds? If income is so low it doesn’t really make much difference to lose the little bit generated. What is important is to safeguard investments during down turns. Long term bonds do this well. We would be better served with a safe treasury that swings more in downturn for use as dry powder or emergency funds. Most of us have never considered gold, but that will provide another layer of low correlation that works better within long term risk.

    Rental property provides bond-like security of investment and also provides inflation protection. It compares with an inflation protected annuity. It relies on your abilities and desires of hands on control and work. The investment is usually a good uncorrelated asset.

    Even though the NYT did a hit piece on the sharing health care system, i will offer my experience with Samaritan. Samaritan posted a NYT interview with one of the sharing participants. This family was very satisfied upon the sharing cost of healthcare and disappointed on how NYT had represented their concerns. I have “Basic” coverage that costs $160 month per person for older participants. We did have a major medical event and the benefit did work as expected. Funny thing is, to actually pay your monthly payment to an individual that has a need. The cost is close to Medicare.

    I think what your doing is spot on for your age. Large portion of investment in low cost broad index fund, ability to cut expenses in downturn, and supplemental income. In theory the international investments make sense, but my summation of information points to the U.S. as most stable and best system even if stocks are expensive. U.S. owns high tech in which will always have high P/E given for example Amazon with the ratio of each employee per $1 million in sales. I read 30%-40% of S&P 500 company sales is international. However, Vanguard advises 40% international for better diversification. May the cost of this diversification be to high?

    1. Thanks for the thoughtful comment Forrest.

      I’ve never owned any gold, but I’m starting to see where it makes sense to have a small allocation there. I’ll be more likely to go there than to buy more bonds when it comes time to rebalance our portfolio if stocks continue to march upward and interest rates remain low.

      We’ve also been interested in real estate, but haven’t been able to find any deals that make sense for us. We’re starting to stockpile a bit more cash with the idea that a property could be on the horizon.

      Otherwise, we’re sticking to our plan as outlined including allocating a portion of our portfolio to international stocks. That certainly has not paid off to this point, but we’re in it for the long haul and I think there will be times that it will pay as the pendulum swings back and forth.

      Finally, I agree with you that Health Care Sharing Ministries don’t always get a fair representation. That said, they are simply not an option for many people including our family (or at least my wife) due to pre-existing conditions. I did cover them in detail here: https://www.caniretireyet.com/health-care-sharing-ministries-early-retirement/

      Best,
      Chris

  13. Savings bonds have limits on purchases, but a couple can buy 40K a year. Currently I bonds pay 0.2% plus inflation and EEs pay 3.5% per year in 20 years.

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