Redeeming high yielding I-Bonds / financing pre Social Security

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karlhall
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Joined: Tue Sep 12, 2017 2:25 pm

Redeeming high yielding I-Bonds / financing pre Social Security

Post by karlhall » Tue Sep 12, 2017 2:46 pm

Greetings

My situation is as follows.

Retired: Age 63/single
Pension: 30K- no cola
Additional Annual Gross Income Goal: 40k for years 2018 to 2024.
Social Security: 37K starting in late 2024

Retirement Funds: Traditional IRA: 520K Vanguard Life Strategy Conservative Growth
Roth IRA : 230K Vanguard Life Strategy Conservative Growth

Non-Retirement Funds:
Cash: 50K in MM/checking/Savings accounts

Savings Bonds:
EE Bonds: Current Value: 20K : Value in 2023: 30K (20 year Value) 15K purchase price.
I-Bonds: Current Value: 180K at 3 to 3.6 % plus inflation rate. 70K purchase price. Mature from 2029 to 2031 in fairly equal amounts.

My decision to make is whether to get the 40k annual income from I-bond sales, IRA withdrawals, or a combination of the two. I plan to sell the EE bonds in 2023 since they get a large increase in value during that year. I would probably do Roth conversions as well, particularly during years when I-bonds are sold. I know that the cost of Medicare increases abruptly at the 85K and 107K MAGI levels.

My current state of residence doesn’t tax pensions, social security, or IRA distributions.

Any suggestions/comments?

Thank you.

Karl

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grabiner
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Location: Columbia, MD

Re: Redeeming high yielding I-Bonds / financing pre Social Security

Post by grabiner » Tue Sep 12, 2017 9:29 pm

I would hold on to those I-Bonds and tap the traditional or Roth IRA (depending on your tax bracket) in preference 3% above inflation, compounding tax-free, is a big benefit, more valuable than the loss of tax deferral for a few years.

Once the I-Bonds have matured, you will have some spare cash, which you can leave in a taxable account until you spend it, or use to pay tax on converting some of your traditional IRA to a Roth IRA to reduce future RMDs.
David Grabiner

JBTX
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Re: Redeeming high yielding I-Bonds / financing pre Social Security

Post by JBTX » Tue Sep 12, 2017 9:43 pm

grabiner wrote:
Tue Sep 12, 2017 9:29 pm
I would hold on to those I-Bonds and tap the traditional or Roth IRA (depending on your tax bracket) in preference 3% above inflation, compounding tax-free, is a big benefit, more valuable than the loss of tax deferral for a few years.

Once the I-Bonds have matured, you will have some spare cash, which you can leave in a taxable account until you spend it, or use to pay tax on converting some of your traditional IRA to a Roth IRA to reduce future RMDs.
Totally agree. I bonds right now return 0% plus inflation. So at 3.0-3.6% plus inflation, you are getting well above market return. An annual return of 5-6% nominal return, RISK FREE, is pretty phenomenal. A lot of people, including Bogle, are predicting stock market returns of 5-6% nominal over the next decade,with obviously a lot more risk and volatility. The bond portion in your funds are probably yielding around 2.0%-2.5% nominal, compared to your 5-6% ibonds.

karlhall
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Joined: Tue Sep 12, 2017 2:25 pm

Re: Redeeming high yielding I-Bonds / financing pre Social Security

Post by karlhall » Fri Sep 15, 2017 1:55 pm

Thanks for the advice. The I-bonds will certainly be hard to sell before their time.

Karl

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Watty
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Re: Redeeming high yielding I-Bonds / financing pre Social Security

Post by Watty » Fri Sep 15, 2017 2:03 pm

I also have some of the 3% iBonds. I treat them as part my bond asset allocation and will not be selling them until they mature because they are earning more than the other bonds that mutual funds invest in.

TBillT
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Joined: Sat Sep 17, 2011 1:43 pm

Re: Redeeming high yielding I-Bonds / financing pre Social Security

Post by TBillT » Fri Sep 15, 2017 4:35 pm

Wow and I thought my 1% I-Bond was good!
I am same age as you, but right now I am selling some stocks.
After that, my plan is to defer SS and max out (within reasonable 25% taxes) IRA withdrawals and convert to Roth IRA/cash.
In other words, we need to look ahead to the age 70.5 required minimum distributions (RMD) from the IRA.
Maybe the RMD is not too bad for you, but directionally you'd rather be taking your gains tax free in the Roth.
Another thing to keep an eye on is Medicare premium levels which our 2016 income already is setting our future payment levels.
Keeping below the next bracket is a fine point to save some bucks.

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