Many points here:
I wouldn’t rely on 4% yield annually. Long term average for inflation is around 3%. Recently it spiked to 5%. From the aspects of the FIRE group (Financial Independence and Retire Early), they use the 4% not as the desired rate of return. It is the rate of draw-down on assets (between 3% and 4% of total value). There are several things that are having to happen in Retirement. You still have taxes (except in the case of Roth withdraws). Withdraws from standard IRAs and 401Ks are taxed as income. Any stock sales you have on your personal account are taxed up to 20% Fed tax and up to 12.3% California state tax(Cap gain is considered income and California). A Retiree still has inflation making things more expensive as you go through the rest of your life (I estimate it as eating away 3% yearly on my purchasing power – note: Normally wage increases offset inflation cost increases.. but now you are Retired…).
Right now, Gov bonds suck on their return, as well as state Muni’s. One of the un-talked about issues of bonds is that bonds can be more volatile than many other investments including stocks unless held until their end date. If market interest rate go up relative to the interest rate on the bond when purchased, the actual value of the bond has to be discounted relative to the yield vs prevailing interest rate raised to an exponent of the number of years left on the bond. This can severely cut into a bonds value if it has to be sold early with a long period left on the bond. This page has an example of the math: https://www.investopedia.com/terms/b/bond-discount.asp
If you want some ‘reasonable’ interest bearing bond-like investments, you might look towards REITs as well as setting up corporate bond ‘ladders’. A ‘bond ladder’ is breaking up the initial investment into segments and then staggering their duration and maturity. This can also reduce the risk caused by increasing interest rates. A simple example would be to build a bond ladder with a 90 day period and 30 day intervals using $90K. This will mean one of the bond groups will mature on each 30 day interval, providing you with access to cash every 30 days. We can consider it as breaking the $90K into three ‘strings’ (I have seen other terms used) of $30K each. Then invest each ‘string’ in the following sequence of durations:
String 1:90day, 90day, 90day, 90day, 90day…
String 2:30day, 90day, 90day, 90day, 90day…
String 3:60day, 90day, 90day, 90day, 90day…
The ‘stutter step’ at the beginning causes maturation of one of the ‘strings’ every 30 days, at which point funds would be available before the balance is reinvested. To ‘rebalance’ just hold over the imbalance from the other ‘strings’ and add it to the balance on the ‘string’ that has a deficit. It is also possible to do the same with 1 year corporate bonds and using 12 ‘strings’. You can go with something like ‘Vanguard Short-Term Investment-Grade Fund(VFSTX)/VFSUX/VSCSX, or a short term bond ETF. NOTE: While Muni’s are state tax free, their yields are currently below 1%. (https://www.municipalbonds.com/bonds/state_yield_averages/) Current Yields on Corporate Bonds are more than 30% higher than that (NOTE:I use the rough percentage of 30 to be able to ‘eyeball’ a comparison between Muni’s and Corp bonds) https://ycharts.com/indicators/moodys_seasoned_aaa_corporate_bond_yield
I did an Excel spreadsheet a while back to calculate (approximately) what an average monthly income someone would have when retiring at a certain age, with a certain amount of retirement investments yielding a certain return and factoring in inflation(some of this part may need work) to show the projected spending power at retirement relative to current spending power. I don’t know if anyone would be interested. I don’t think the Piggington website can have me attach Excel sheets. I would also have to ‘sanitize’ it because I built it to help someone. It uses a bunch of Amortization and ‘Payment’ calcs. As usual, GIGO would also apply. I didn’t put many garbage input checkers.
Here is a retirement ‘estimator’ that uses previous market results going back to 1871 for some data, and 1927 for other under different scenarios. Warning, there are more data entry point than it looks at first. https://www.firecalc.com/index.php?FIRECalcVersion=3.0&
