EE Bond plan leading into Soc Security

[crowd79]

The following was posted in another thread, but I think it got lost in the shuffle with zero comments. It probably deserves it's own thread:

What do people think of my current plan to buy EE Bonds routinely for the next 17 years, starting at $250 per month, and then increasing it by $10 per month every year for the next 17 years until age 49 (increasing slightly for inflation)? I am currently 33 years old and my strategy is to have guaranteed income between the ages of 53-69, until I would start withdrawing from Social Security at 70. Depending on how the rest of my portfolio does (75% stocks/ 20% bonds/ 5% cash) over the next 20-30 years, starting to receive EE Bond payments at age 53 (though unlikely, probably late 50's more realistic) could tilt in favor of early retirement. If not, I will just let the EE Bond income accumulate until actually do retire sometime later (late 50's thru 60's), and count on that EE income until I start taking SS at age 70.

Age 33/$3000 (invested in EE Bonds yearly) > Age 53/$6000 (income for year) > Total amassed
34/$3120 > 54/$6240 > Total:$12,240
35/$3240 > 55/$6480 > Total $18,720
36/$3360 > 56/$6720 > Total $25,440
37/$3480 > 57/$6960 > Total $32,400
38/$3600 > 58/$7200 > Total $39,600
39/$3720 > 59/$7440 > Total $47,040
40/$3840 > 60/$7680 > Total $54,720
41/$3960 > 61/$7920 > Total $62,640
42/$4080 > 62/$8160 > Total $70,800
43/$4200 > 63/$8400 > Total $79,200
44/$4320 > 64/$8640 > Total $87,840
45/$4440 > 65/$8880 > Total $96,720
46/$4560 > 66/$9120 > Total $105,840
47/$4680 > 67/$9360 > Total $115,200
48/$4800 > 68/$9600 > Total $124,800
49/$4920 > 69/$9840 > Total $134,600
50 Stop buying, in anticipation of taking SS at 70.

Now what I mean by possibly retiring early, is for example, I determined it was okay to retire at Age 62. By the end of age 62, I will have amassed $70,800 in EE Bond income (if not spent in prior years from 53 thru 62). Adding EE Bond income from Ages 63-69 gives me another guaranteed $63,800 in income. $70,800 + $63,800 = $134,600 total income, which I can spread out over 7 years leading into SS withdraws starting at age 70, which is a guaranteed $19,228.57 in income per year from ages 63-69, divided by 7 years. Obviously if I were to retire a few years earlier, then this amount would be smaller, but you get the idea....

Not only would a guaranteed income from EE Bonds possibly lead to early retirement, but it could also mean delaying SS payments, which would be much larger than starting at 62, for instance. a win-win in my opinion and IMO, Mel is spot on.

[Grt2bOutdoors]

Have you accounted for the erosive effects of inflation and taxation? If you can live on half or less of your interest earned and are comfortable with principal spending, then fine. Otherwise, just consider the strategy of being just one quiver in your arrow case.

[DualIncomeNoDebt]

I'm doing almost exactly this. Buying the full amount in EEs, $10k a year. Just started this year, got my allotment. Really, really wish I had started years earlier, in my 20s, even. But savings bonds just fell off my radar, plus there were no online tools that many years ago. But thankfully this forum was talking about I-bonds, then EE-bonds, and I rediscovered them. Definitely going to use these EEs to delay taking early social security. In my mind wanting to get that increased social security benefit at 70 will be another motivator to stay healthy, live well, etc.

[Peter Foley]

Interesting approach. If I were to attempt something along these lines I would plan for withdrawals at 20 years - the date of maturity when the bonds are guarranteed to double. I think the fallacy of trying such an approach would be that the buyer would be dependent upon consistent rules for e-bonds over a long period of time. That has not been the case in the recent past.

[Angst]

Interesting approach. If I were to attempt something along these lines I would plan for withdrawals at 20 years - the date of maturity when the bonds are guarranteed to double. I think the fallacy of trying such an approach would be that the buyer would be dependent upon consistent rules for e-bonds over a long period of time. That has not been the case in the recent past.

And if (when) rates rise enough, it will again be cheaper (i.e. a better investment) to buy long treasuries than EE's.

[Epsilon Delta]

I think the fallacy of trying such an approach would be that the buyer would be dependent upon consistent rules for e-bonds over a long period of time. That has not been the case in the recent past.

I view EE and I bonds as just another type of fixed income security. At the moment they are attractive so I buy them. If they remain attractive for the next twenty years part of my portfolio will resemble crowd79's EE bond ladder. If not I'll have a mixed bag of EE & I bonds, CDs, Munis and who knows what else. Lots of things have come and gone over the years, at one point a chunk of my fixed income was in a Dreyfus MM fund, and it made sense at the time.

[STC]

EE Bonds and IBonds can be viewed as an annuity - per Mel.

I am 33. Started IBonds last year ($40k balance). Going to start EE Bonds at 35 for both my wife and I, with the intention of maxing them out each year after 401k's and IRA's. At current income we should be able to comfortably manage that. Then, if I assume a 1% real return from age 35 to retirement at 55, i end up with:

$959,000 at age 55, or $45k - $50k per year in todays dollars for 20 years.

I'll also have house and college paid off by then. I view this money as a bridge from early retirement to social security for my "basic expenses" bucket (taxes, utilities, food, etc). If I do a 20 year draw down on this, I can start SS at 70 and at 75 buy an annuity to replace any delta. This leaves 401k, IRA's, and taxable accounts as "fun money."

[crowd79]

EE Bonds and IBonds can be viewed as an annuity - per Mel.

I am 33. Started IBonds last year ($40k balance). Going to start EE Bonds at 35 for both my wife and I, with the intention of maxing them out each year after 401k's and IRA's. At current income we should be able to comfortably manage that. Then, if I assume a 1% real return from age 35 to retirement at 55, i end up with:

$959,000 at age 55, or $45k - $50k per year in todays dollars for 20 years.

I'll also have house and college paid off by then. I view this money as a bridge from early retirement to social security for my "basic expenses" bucket (taxes, utilities, food, etc). If I do a 20 year draw down on this, I can start SS at 70 and at 75 buy an annuity to replace any delta. This leaves 401k, IRA's, and taxable accounts as "fun money."

Exactly my idea behind my EE Bond ladder as well. Some people I talk to think I'm crazy for doing this, but a guarantee of an income stream in possible early retirement will be advantegous for budgeting. A 3.53% return that's guaranteed and also free from state income taxes. Really is hard to beat as a largely risk-free investment today.