Would You Easily Run Out of Income with a 100% Fixed Income Portfolio

If you only rely on 100% fixed income for your income, does that mean that mean your income cannot last 30 years?

I think with my Gilgamesh, we can seek to answer that question.

We would always say that fixed income don’t really do well in environments where inflation is pretty high. And we cannot control the period we live through. So it is a good idea for our income to be more equity based.

I always wonder how true is that.

The problem with a lot of Income simulation application out there is that they only have US government data that is pretty long term. That is actually an advantage don’t get me wrong. You may not hold US equities or fixed income, but what you wish to test in these simulation is actually the interplay between some unique diversified equity volatility with diversified fixed income volatility.

The length of data actually helped.

But they lack the nuances of different duration, different grades of credit to let us see how things are.

I recently added some US Credit bond index to what is available to you to form the portfolio:

I have added:

• Bloomberg US Credit Bond Index A USD
• Bloomberg US Credit Bond Index Aa USD
• Bloomberg US Credit Bond Index Aaa USD
• Bloomberg US Credit Bond Index Baa USD
• Bloomberg US Credit Bond Index Intermediate A USD
• Bloomberg US Credit Bond Index Intermediate Aa USD
• Bloomberg US Credit Bond Index Intermediate Aaa USD
• Bloomberg US Credit Bond Index Intermediate Baa USD
• Bloomberg US Credit Bond Index Long A USD
• Bloomberg US Credit Bond Index Long Aa USD
• Bloomberg US Credit Bond Index Long Aaa USD
• Bloomberg US Credit Bond Index Long Baa USD
• Bloomberg US Credit Corporate Investment Grade Bond Index

Credit bonds are actually bonds issued by corporations such as Apple and quasi-government such as Province of Ontario in USD. The fixed income from corporations are more investible than the quasi-government ones.

The duration for blended should be about 6 years for intermediate, longer than 10 for long and somewhere in between for the blended.

Aaa is the highest credit quality, with Baa the lowest.

I added this set of fixed income indexes because they start in Jan 1973 and you would have about 52 years of data and we will be able to observe how different credit quality and duration of fixed income do to income.

Or whether they don’t matter at all.

If you would like to know more about credit bonds, I attached some notes at the end.

A 100% Baa US Credit Bond Portfolio Provides Income Over a 30-Year Period

I just put in the most blended of this index with the lowest credit quality (Bloomberg US Credit Index Baa) and then make it start spending $40,000 on a $1 million portfolio. The All-in-cost is 0.50% p.a. (I didn’t bother to change this since higher is a tougher hurdle)

So we are really simulating the 4% Rule with a 100% fixed income portfolio.

There are 279 30-year periods between 1973 and Feb 2026 and all of them survived. Some preserve their wealth (the green lines), some didn’t but the money lasted 30 years (yellow lines).

Now… some would not be comfortable to adjust the income by inflation, but I am a madman here so I did adjust. So how does the worse sequence look like?

Some of the early sequences that start in 1973 is very challenging because the inflation in that period is 4.95% p.a.

You should know how much higher that is compare to the traditional planning.

The worse sequence saw the portfolio ending only with $490,460 and you might have notice the compounded average growth to be 8.97% lol.

Returns are not everything my friends.

Let’s take a look at the worse sequence:

We basically slave drive the portfolio to step up the income from $40,000 every year based on inflation and it eventually deliver $169,000 in year 30.

This test lets you see if you held such a fixed income heavy portfolio and could it NOT work out well?
Not always.

The current withdrawal rate takes the current spending amount divide by the current portfolio value. If the year 30 current rate is 34.83%, it kind of means maybe this port will run out of money in 2 years.

It is kind of brutal.

What if we just add 20% in MSCI World to the Portfolio?

Good thing the MSCI World Index data go back to 1970, which is longer than the Credit bond data.

We just allocate 20% of the credit bond to MSCI World:

There is one less sequence probably due to MSCI World only have data till Jan 2026.

What we see is more wealth is actually preserved.

But how did that worse sequence did?

Adding equities doesn’t improve the situation really.

This is what is unique about sequence of return simulations like this. It allows you to visually understand its not always about putting more and more equities.

Start with 3% ($30,000) instead of 4%

If we start spending with $30,000 instead of $40,000 on the $1 million portfolio with 20% MSCI World 80% US Credit Bond Baa, you can see we still have $3.6 mil:

The income still inflation adjusts and while we didn’t preserve the value at the end, it is still much better.

Why?

I always say this Current Withdrawal Rate over Time is something you should pay attention to because it gives you an idea about the sensing. Instead of leaving with a current withdrawal rate of 35%, you are still at 3.5%.

Your portfolio can last beyond 30 years.

Play with It Yourself

I think you can try playing around with the various credit rating and duration to see which one is better.

I observe the following:

1. Lower duration makes most of the sequences last longer
2. Lower credit quality makes most of the sequence last longer

What is a Credit Bond?

A credit bond is a bond issued by an entity that is not a government, meaning investors take on credit risk (the risk the issuer defaults) on top of interest rate risk. They pay a credit spread — extra yield above government bonds — to compensate for that risk.

The Bloomberg US Credit Bond Index specifically covers USD-denominated, investment grade bonds issued by:

• Corporations (industrials, financials, utilities)
• Quasi-government / sovereign-related entities (supranationals, agencies, foreign government-linked issuers)

They must be investment grade (Baa/BBB or above) and meet minimum size and liquidity requirements.

Examples of Quasi-Government / Sovereign-Linked

These are entities with implicit or explicit government backing, but they are not the central government itself, so they fall into credit indexes rather than pure government indexes:

Issuer	Type
KfW (Germany)	German government-owned development bank
Export-Import Bank of Korea	Korean government policy bank
Province of Ontario	Canadian provincial government bond
Inter-American Development Bank (IDB)	Supranational with sovereign member backing
European Investment Bank (EIB)	EU supranational institution

These typically carry very tight credit spreads because the market views them as near-sovereign in safety.

Examples of Corporate Credit Bond

These are private-sector companies issuing bonds, the largest component of credit indexes:

Issuer	Sector
Apple Inc.	Technology
JPMorgan Chase	Financials / Banking
Johnson & Johnson	Healthcare
AT&T	Telecommunications
ExxonMobil	Energy

Higher-rated corporates (Aaa/Aa) like Johnson & Johnson tend to have very tight spreads, while Baa-rated corporates offer more yield but with greater default sensitivity — especially during economic downturns.

What is Missing from these Indexes

1. High yield / sub-investment grade bonds [greater than Baa]
2. Municipal bonds
3. Mortgage-backed or asset-backed securities
4. Floating rate instruments
5. Non-USD credit
6. Emerging market credit.

The Difference in Maturity

Official Bloomberg definitions as:

1. Bloomberg US Intermediate Credit Index covers investment grade, USD-denominated, fixed-rate debt with less than ten years to maturity.
2. Bloomberg US Long Credit Index covers investment grade, USD-denominated, fixed-rate debt with at least ten years to maturity, up to final maturity regardless of optionality.

The Difference in Duration

The challenge to figure out duration is that there is not a lot of publicly available information out there.

If we use some of the maturity bond of Investment Grade Corporate Bond ETF proxies we triangulate to:

1. Short: 2.7 years
2. Intermediate: 6 years
3. Long 12.2 years

What is missing is that the indexes includes quasi government and sovereign fixed income, and so this might not be exactly representative.

What is useful is to use different duration of fixed income indexes to see how they affect the income and not conclude in absolute.