This ETF Will Self Destruct In Three Years (or 5 or 10)

One intriguing idea that we talk about occasionally is that of letting a taxable account deplete while delaying Social Security and/or IRA distributions. While I have used the word deplete/depletion to describe this, other place might refer to it as a drawdown strategy. My attempts at trying to articulate this have been sort of clumsy I have to say but either way LifeX funds has three ETFs that implement this idea over different timeframes.

• LifeX 2028 Income Bucket ETF (LIFT)
• LifeX 2030 Income Bucket ETF (BCKT)
• LifeX 2035 Income Bucket ETF (LDDR)

The symbol of of the 2035 fund tells you what these are, simple treasury ladders. Similar to BulletShares funds, the Income Bucket funds will terminate in the year indicated but unlike BulletShares, the Income Buckets will be depleted. The distributions are a little bit of treasury interest and a lot of return of capital. 

Yes, this is quite doable for individuals, especially these first versions that just use treasuries but the Income Buckets only charge 25 basis points so for some people, this would be worth delegating the work.

Using LIFT as an example, someone is 64 and would rather wait until 67 +/- to take Social Security

That's LifeX' calculator. 

I sat in on a webinar for these and there was a question about what would happen if interest rates went down a lot, would the payout drop? They said no because the bonds are already purchased. The largest holding is a T-bill that matures August 31, 2027 and it yields 3.56% currently.

LIFT has about $1 million in it. If it yields 3.50% (very round number) and six months from now rates have dropped to 3% and at that time a $20 million buyer comes in when it's yielding 3%, what happens to the 3.5% yield the early buyer was getting? I asked that question and was told it would function like bond fund, the NAV would go up which would lead to it maintaining the payout in the end. 

We will find out whether that stands up or not, if rates to get cut as aggressively as some are hoping for. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.