crowd79 wrote:After reading the Boglehead's Guide to retirement investing and the chapter on Annuities, it got me thinking about using EE Bonds as a de-facto "partial" annuity. If I were to reach age 60, for instance, and decided to purchase EE Bonds for 20 years until age 80. Starting at age 80, I would receive double my investment every year for 20 years if I lived to 100 (unlikely!). Seems like this could be cheaper than buying an expensive insurance product, and if I were to die before 100, at least my heirs would receive the Bonds.
If I understand what you are saying, it is - say you purchase $10,000 in EE bonds every year for 20 years ,then starting in year 20 you can cash each of the EE bonds out at $20,000 per year. IF, (and this seems to be a very big if, with bonds rates at .2%) this EE doubling guarantee continues until you reach age 80, then I would say this is not a bad plan, but not as good as buying an annuity outright at age 80. If my calculations are correct, it would allow you a fixed annuity with essentially a withdraw rate of 7%. However, right now even at these very low rates you could buy an immediate annuity for a single male at age 80 that would payout about 11%, and even with a 10 year payout to a beneficiary clause you could get 9% -- that is why this is not the best deal.
Also, if you are forced to liquidate any of the EE's before 20 years you could get significantly less with current rates at .2%.
I love simulated data. It turns the impossible into the possible! Remember - Past performance is great for buying a dishwasher, but not so great for picking stocks or actively managed mutual funds!