Thanks for the feedback. You mean your liquid stash is 5.6 years, not your bond maturity average. Right?
Edited to add: now I have to go nail down annualized expenses. Thanks a lot! 
Both.
I invested in bonds a ittle differently than IxnayBobā¦but maybe ended up with the same effect.
I have a lot of cash and my bonds are more long term than 5.6 years. You have heard of the barbell term? That is what my fixed income allocation looks like. Lots of cashā¦and I own many bonds with 15 year maturies. Probably ended up with a duration a little longer than 5.6 years when including cash.
I donāt knowā¦it just got that wayā¦fit my psychology. Psychology plays a huge part in investing.
Although asset allocation is very important, I am more concerned with what happens when people start spending their assets.
Spending down assets has a bigger effect on psychology than most people consider.
@newjersey17ā
To add a bit to the complexity of the 5-year ānon-exclusion periodā when distributions from Roth IRAs are not āqualifiedā or tax-free:
Each new conversion triggers a new 5-year holding period FOR THE EARNINGS on that conversion. The original amount deposited can be withdrawn at any time.
@dstarkā
Thanks. I agree about the psychological effect about spending down hard-earned money. But thatās what itās for.
All money is fungible. But if some kid thinks that āthis is stock I inherited from my grandmother,ā there is an even greater (and perhaps harmful) emotional attachment to it. Such as one that results in a reluctance to liquidate when appropriate. Iāll remember to put big notes in our account files that says, āthis money is fungible.ā
@AttorneyMother, Vanguard Intermediate MMM Fund? Is that the Mr. Money Mustache Fund?
I donāt know the fund youāre referring to; is it a Money Market?
In tax-deferred, I use Total Bond Fund.
In taxable, I have Intermediate-Term Tax-Exempt Fund, Inflation-Protected Shares, New Jersey Long-Term Tax-Exempt Fund, and NJ Tax-Exempt MM in declining order of balances.
Amen. Even though we are still net accumulators, there are times when I have to draw down Money Market or bond funds (for income tax return, school tuition, etc.) and it makes me feel vaguely like Iām not being wise with our assets.
I can only imagine what it will feel like when weāre net de-accumulators. Maybe thatās why some people like dividend paying stocks; they foster the illusion that āwe havenāt touched the principal.ā
Yes, it does feel odd to see the RMDs reduce our IRA balances, even tho that is the purpose. We are fortunate that Hās pension does cover the bulk of our required expenses and the RMDs help with many of the other expenses.
@IxnayBobā
Thanks for the information. I was using a misnomer. I was actually referring to one of your Vanguard Funds, as it turns out:
Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
So, it would seem that, for me, whatās old is new again.
And, I have no idea who Mr. Mustache Money is and donāt need to.
Mr. Money Mustache, although you donāt want to know, is the subject of heated debates over at Bogleheads. Some like him; I think heās not my cup of tea.
Please say it aināt so!! If Roth IRA distributions are included in AGI or MAGI, and causes other items to be taxable, then they arenāt really tax free, are they?
I have a roth question that I cannot find the answer to with internet searches. When I reach age 70 1/2 and start having required minimum distributions (RMD), can I meet the requirement with a Roth IRA distribution? If I am required to withdraw $20,000 in IRA funds can I take it all from a Roth, and not pay any taxes that year?
My introduction to pitfalls of RMDs came a few years ago when my mother in law forgot to take hers. Her tax preparer merrily calculated the penalty and had my mother in law pay it. This penalty is 50% of the RMD!!! So if you forget to take your RMD of $2,000, which might have cost you tax of $200, the IRS charges you a $1000 penalty! I was so angry!!! really furious. When is a person more likely to āforgetā to make a RMD? Answer: As you get OLDER. It seems like such an obvious tax trap designed especially for seniors. Fortunately, the IRS makes it relatively easy to have the penalty waived by writing them a letter explaining that you forgot and that it wonāt happen again. I think they let you get away with this once. I calmed down a bit after that, but I still think it is a special tax trap for seniors.
AttorneyMother, how long are you going to hold vwitx?
What kind of return are you looking for?
NO, taking funds out of a Roth do NOT satisfy RMD requirements. Those funds are not āincome.ā You can aggregate your traditional IRAs and choose which one to withdraw the funds from, but canāt aggregate between Roth and traditional IRAs for RMDs.
@NJresā
RMDs from traditional IRAs (tIRA) count towards AGI and MAGI.
Roth distributions do not count as tIRA distributions. They are a separate species of beast. Any RMD from a tIRA has to come out of the tIRA.
Edited: Also, the larger companies like Vanguard (IME) and Fidelity offer auto reminders of RMDs. But I agree with your worry as one ages.
This suggests that one can file an appeal with the IRS regarding the excise tax:
http://www.investopedia.com/articles/retirement/05/011005.asp
@dstarkā
Itās for parking money. Itās better than the Muni MM Fund that Iāve parked money in before.
Iām looking for greater than whole-digit returns like 1.5 or 2.0%
AttorneyMother, you are going to have some price riskā¦the fund price could dropā¦
Are you ok with this?
I try to look at charts to see how funds move over timeā¦
http://finance.yahoo.com/q?s=VWITX
Click on the 5 year history of this chartā¦
If the fund doesnāt move in price you will get the return you wantā¦
Parking sounds like very short termā¦not a few yearsā¦are your needs matching the maturities of the holdings of the fund?
If you are going to use the money within a year for example, do you think the length of your investment should match that?
You can make a notation on your calendar or just take the RMD out at the beginning of each year. The custodian s have sent us reminders.
@dstarkā
Thanks for the information. I agree that the fund price could drop; thereās that interest rate talk again.
I probably chose the wrong word with āpark.ā Itās the same liquid funds I was trying to construct for 1-year living expenses, 5-6 years ongoing living expenses. In other words, money that comes out of the equities during retirement years. Money that would make me not go nuts if the other end of my investment barbell (as opposed to the bond barbell) starts to deflate.
Iām not averse to paying taxes on the bond fund. How should one look at taxable bond funds, considering that each investor has different marginal rates?
You are going to have interest rate risks with taxable bond funds. You use your marginal tax rates when looking at bond funds and other fixed income investments.
One of the problems with these short term funds is the rates are low to begin with. If an investor is investing in a bond fund with a 5 year duration, making 5 percent a year and interest rates rise 1 full percentage points, the investor breaks even. Not so if the investor is making 2 percent in interest. The investor is down.
An investor may be better off shopping for 1 or 2 year cds. Some financial institutions offer deals.
@dstarkā
Thank you for the information. I find it helpful to subtract out the money and bond funds when I do the return on equity year-over-year calculations. I just did that for the past 10 or so years. The blended rate doesnāt look too bad even if I know the money and bond funds are being gradually eroded by inflation. If I look at it that way, then I can be a bit more lax with the bond fund return.
DIY retirement planning is hard work. Thanks again for the feedback.