The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: detroital on May 03, 2018, 09:22:58 PM
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For purposes of minimizing risk, how about, we put our nest eggs in CDs? They are paying 2.9 to 3.2 percent for 3 to 5 year certificates. That's an extremely safe way to do a 3 percent rule.
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For purposes of minimizing risk, how about, we put our nest eggs in CDs? They are paying 2.9 to 3.2 percent for 3 to 5 year certificates. That's an extremely safe way to do a 3 percent rule.
With no appreciation you will lose money with inflation, assuming you don't reinvest the interest back into the principal.
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Inflation is what kills that plan. The 4% rule for a balanced portfolio uses the real return (inflation adjusted), which is equivalent to a 7-8% CD rate.
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Not to mention if you aren't concerned about appreciation just buy PMF, it's a Pimco muni fund that isn't taxable as Fed income, it pays 5.5% yield...
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CDs are FDIC insured. Is the Pimco fund?
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With inflation on the rise, those CDs may not even keep up with inflation over that long of a time span, and don't forget tax. The PMF fund doesn't look good, either.
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Great strategy, just reduce that SWR to 2% then you should be good for another 50 years ;P
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That has huge risks on both ends. On the one end, inflation could destroy CD's. On the other end, 3 and 5 year CD's have reinvestment risk: maybe CD rates will drop to 0-1% for the next 30 years, and your 3% CD's will expire in 3-5 years. If your horizon is less than 30 years and you are OK losing your principal, a TIPS ladder could work. Usually I recommend at least 50% in stocks for the long run though.