He Moved His 401(k) Into Bonds to Bridge Two Years to Social Security. His Bond Fund May Still Be Financing the AI Boom He Thought He Left Behind

Picture a 64-year-old who leaves work and moves part of his 401(k) from stocks into a broad U.S. bond fund. His plan is simple. The bonds will cover two years of spending, and then he will claim Social Security at 66 instead of right away. He also figures he has stepped away from the AI boom that is driving much of the stock market.

He is closer to that boom than he thinks. One investor recently asked whether a popular broad bond fund, with an average maturity of about seven years, moves too closely with stocks to work as a real safety net. That is exactly the right question to ask, and the answer might surprise you.

Your Bond Fund May Own the Companies You Just Sold

Big technology companies are borrowing hundreds of billions of dollars to build AI data centers, and money held in U.S. bond funds can help pay for it. Corporate bond buyers are getting pickier as that debt floods the market. Rising yields also make things riskier for companies that borrow heavily to fund AI.

Selling stock and buying bonds changes his role. As a stockholder, he owned a piece of each company. As a bondholder, he is a lender who counts on the company to pay interest and return his principal. Some broad bond funds hold plenty of debt from big AI spenders, and others hold very little. The only way to know is to look at the holdings.

Why Waiting Until 66 Pays for Life

Anyone turning 64 in 2026 has a full retirement age (FRA) of 67. For the 36 months immediately before that age, each month claimed early reduces the benefit by 5/9 of 1%. If he claims at exactly 64, the reduction is 20%. If he waits until exactly 66, it is about 6.7%.

Say his full benefit would be $2,000. That works out to $1,600 a month at 64 versus about $1,867 at 66. He keeps an extra $3,200 a year for life. Each annual cost-of-living raise then builds on the bigger check.

That gain comes from a smaller early-claiming penalty. Delayed retirement credits start only after 67. The bond fund covers his bills while he locks in the larger check.

Rising Yields Can Squeeze the Bridge

Suppose he sets aside $100,000 to cover the two years. When yields rise, bond prices fall. The 10-year Treasury yield reached about 5.2% on Sept. 24, up sharply from a month earlier and its highest level since 2007.

Heavy AI borrowing could push corporate borrowing costs higher or widen credit spreads, the extra yield investors demand to lend to a company rather than the government. Either way, he might have to sell fund shares at lower prices to pay for living expenses. That brings back the risk he left stocks to avoid: selling to cover spending while the account is down.

The worst case is being forced to choose between selling at a loss and claiming Social Security early, which would lock in a smaller check for life.

Five Things to Check Before Trusting a Bond Fund With Two Years of Bills

1. How much is in corporate bonds, which shows dependence on company balance sheets rather than government IOUs.
2. The largest corporate issuers, to see whether heavy AI spenders make up a big piece.
3. Average credit quality. Lower-rated debt pays more interest but falls harder when lenders get nervous.
4. Duration, which measures how sensitive the fund’s price is to interest rates. Higher duration means bigger price drops when yields rise.
5. How much is in Treasuries or other government debt. A Treasury-heavy fund and a corporate-heavy fund perform very differently.

For money he expects to spend within two years, shorter options are worth comparing. As of Sept. 24, the 2-year Treasury yielded about 4.9% and the 1-year about 4.5%. An individual Treasury held to maturity returns its face value, so he does not have to sell a bond fund at whatever price the market happens to offer.

Make Sure the Bridge Holds Before You Cross It

He left stocks because the next two years mattered more than chasing another rally. What counts now is that the money funding the bridge perform as expected. A new type of security can still carry the same companies behind.

The hardest mistake to undo is claiming early because the bridge got shaky. Your fund’s holdings, its duration, and your benefit estimate can each change the math. Pull up your Social Security statement and run your numbers before you commit.

Contact [email protected] for any questions or corrections.