At What Point Are Yields Crazy?

First, I'll answer the question in the title. A 20% yield is crazy in terms of not having a realistic shot at being sustainable. Maybe the crazy threshold should be a little lower, but twenty for sure. 

We've spent some time on developing a bridging strategy to make a smaller piece of money, smaller in relation to a rollover IRA, last for some number of years until the next financial milestone, like starting Social Security or taking RMDs. Sticking with the ten-year example we've worked before, we'd be willing to spend 1/10th of the original balance each year, depleting to zero after ten years. With that in mind, can we take that big distribution and have something left over at the ten-year mark or make that pot of money last longer? 

I've said this research is probably aimed at our (my wife and me) financial situation at some point down the road. We've looked at some crazy combinations that I probably wouldn't want to pursue, but I think by adding one of those distributing ladder ETFs, we can dial the crazy way down.

Here's the latest version: TIPB matures in 2035, which does not fit in with my timeline for any of this but will do for long-term research/following.

The highest yielder is CAIE at 14%, so we're nowhere near crazy if we're sticking with 20%. There's not much equity beta but there is some. The backtest can only go back a year, so there's not a lot of useful information, but here it is.

The yield is 8.25%, which is pretty high considering how much is in TIPB and JAAA. TIPB, though, has a sneaky high yield, and the first tranche of TIPS in the fund will mature next month, which will kick the "yield" up considerably when it returns principal, as it is designed to do. 

If we implemented this with $450,000 and took out $11,250 per calendar quarter in a ten-year period that was identical to 01/01/2000-12/31/2009, Copilot says there would be $330,000 left over. The next stress test was a ten-year period where the yield on the ten-year US Treasury went from 1.5% to 7% over a ten-year period. In that scenario, everything else being the same, Copilot says $106,000 would be left over. Rates can't start at 1.5% because we're at five and change, but the point is something terrible happening in the bond market.

I would imagine the product landscape continues to improve; maybe in six to eight years, when I might need to consider this, it can be a little more robust.