EE bonds soon?

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VAslim16
Posts: 157
Joined: Sat May 24, 2008 6:47 am

EE bonds soon?

Post by VAslim16 »

Hi all,

Looking for some opinions on whether EE bonds might be a good fit for me. I am single, 41 and will be 42 in a few months. My portfolio is about 300K (not great, but not bad for a teacher salary). I work mostly overseas so all my investments are in a taxable account. I am 70/30 with my stocks an even 50/50 VTI/VXUS and my fixed income in I-bonds, CDs and cash. With all that is going on, I am wondering if starting at my 42nd b-day I start investing 1K a month in EE bonds, with the idea that I withdrawal in 20 years and have 2K in income. I still plan on investing 10K a year in I-bonds but if I allocate another 10K to EE bonds, I might not have as much as I'd like to invest in stocks. So, just looking for thoughts/insights/different perspectives from you all. My original plan was to retire at 55 but that probably isn't happening now. 60 or 62 is the new target.

Thanks in advance all.
Grt2bOutdoors
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Re: EE bonds soon?

Post by Grt2bOutdoors »

Keep your 70/30 split - invest the 30 in EE bonds but then you’ll have to juggle rebalancing with remaining monies in your other accounts. You can only buy $10k per year in EE bonds. You can’t do $1k per month due to purchase limitations.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
VAslim16
Posts: 157
Joined: Sat May 24, 2008 6:47 am

Re: EE bonds soon?

Post by VAslim16 »

Yeah thanks Grt. I would do something like 830 monthly just to have the steady monthly income. Much appreciated on your thoughts.
RyeBourbon
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Re: EE bonds soon?

Post by RyeBourbon »

What's the advantage of EE bonds?
aristotelian
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Re: EE bonds soon?

Post by aristotelian »

I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
RyeBourbon
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Re: EE bonds soon?

Post by RyeBourbon »

aristotelian wrote: Tue Sep 15, 2020 9:55 am I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
Where does the 3.5% come from? I think they're paying 0.1% right now.
THANKS
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Re: EE bonds soon?

Post by THANKS »

RyeBourbon wrote: Tue Sep 15, 2020 10:01 am
aristotelian wrote: Tue Sep 15, 2020 9:55 am I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
Where does the 3.5% come from? I think they're paying 0.1% right now.
If you hold for 20 years they double from your purchase price (which works out to be 3.5%). You get 0.1% for 19 years, then it doubles, and then returns to the 0.1%.
Topic Author
VAslim16
Posts: 157
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Re: EE bonds soon?

Post by VAslim16 »

RyeBourbon wrote: Tue Sep 15, 2020 10:01 am
aristotelian wrote: Tue Sep 15, 2020 9:55 am I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
Where does the 3.5% come from? I think they're paying 0.1% right now.
If one holds for exactly 20 years they double in value.
Topic Author
VAslim16
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Re: EE bonds soon?

Post by VAslim16 »

aristotelian wrote: Tue Sep 15, 2020 9:55 am I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
No unfortunately I don't. Yeah hopefully I can swing 10K a year in both I bonds and EE bonds and still put enough into stocks also to keep my 70/30 ratio. Will be tough but I like a challenge.
rockAction
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Re: EE bonds soon?

Post by rockAction »

RyeBourbon wrote: Tue Sep 15, 2020 10:01 am
aristotelian wrote: Tue Sep 15, 2020 9:55 am I have started buying some this year at age 46. I think if I buy for the next few years they can be useful to provide a ladder of income while delaying Social Security. I wish I had started a few years earlier. As long as you don't need the liquidity, 3.5% return is way better than anything currently on the market.

As a teacher, by any chance do you have access to TIAA Traditional Annuity? That would be the only thing that comes close.
Where does the 3.5% come from? I think they're paying 0.1% right now.
EE Bonds are guaranteed to double if held for 20 yrs, which comes out to around 3.5% per year.
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willthrill81
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Re: EE bonds soon?

Post by willthrill81 »

RyeBourbon wrote: Tue Sep 15, 2020 9:45 am What's the advantage of EE bonds?
They offer a higher nominal yield than any other federally guaranteed fixed income instrument available today, 3.53% if held for 20 years. They have some interesting and significant cons though, such as the fact that they become increasingly illiquid the longer they are held. If they are redeemed at any time prior to the doubling that occurs after 20 years from purchase, the nominal rate of return is only .1%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Unhandled
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Re: EE bonds soon?

Post by Unhandled »

You're looking for opinions- here's mine. You have 300K so you're already doing well. Doubling your investment in 20 years sounds great. But $10K in a 50/50 mix of VTSMX/VGTSX over the last 20 years would be $27,824 today- more than double (of course past performance is not a guarantee). Personally, I think getting into EE bonds is being overly conservative. Being "only" 70% in stocks is already quite conservative.

Edit:
What about converting some of your current 30% portfolio into EE bonds?

Edit 2:
:oops: Ahh, I understand now. You are keeping your overall 70/30 and shifting some of that 30% into EE Bonds. I like it.
Last edited by Unhandled on Tue Sep 15, 2020 10:36 am, edited 2 times in total.
aristotelian
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Re: EE bonds soon?

Post by aristotelian »

Unhandled wrote: Tue Sep 15, 2020 10:29 am You're looking for opinions- here's mine. You have 300K so you're already doing well. Doubling your investment in 20 years sounds great. But $10K in a 50/50 mix of VTSMX/VGTSX over the last 20 years would be $27,824 today- more than double (of course past performance is not a guarantee). Personally, I think getting into EE bonds is being overly conservative. Being "only" 70% in stocks is already quite conservative.
You are seeing EE Bonds as replacing his portfolio. If he is maintaining his overall allocation, then he is shifting from some other bonds to EE bonds. From that standpoint, EE Bonds likely have the higher expected return.
jimkinny
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Re: EE bonds soon?

Post by jimkinny »

Seems like a good idea if you are willing to take the inflation risk. I have no idea what inflation will be 3 or 20 years from now. The best guess is the markets guess. I haven't looked for a long time but a good estimate for this would be the difference in yields between nominal and inflation protected Treasuries. I would bet without looking that the 3.5% cited above would cover expected inflation and leave some room for term yield in the range of 1.5%. I am pretty sure you can find the Fed's estimate published somewhere.

The Fed has indicated that if given the chance, they will let inflation go above 2% in order to achieve an average 2% inflation target. You likely know that the the Fed's measure of inflation has been consistently under 2% for some time. I have no clue as to whether the Fed can achieve its goal.

You might be interested in this link which is Grok's post of "Roll your own pension-Build a TIPS ladder. I know you are using I bonds but if you want to eliminate inflation risk, having reached your I bond max, you might consider Grok's tip.

viewtopic.php?f=10&t=218634

I have also read that one can use some of the money from an income tax refund to buy additional I bond's over the 10K. I don't know anything about it but you likely can find it on the Boglehead wiki and or searching through the regular Boglehead site.
Pegasus_RPG
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Re: EE bonds soon?

Post by Pegasus_RPG »

jimkinny wrote: Tue Sep 15, 2020 10:52 am I have also read that one can use some of the money from an income tax refund to buy additional I bond's over the 10K. I don't know anything about it but you likely can find it on the Boglehead wiki and or searching through the regular Boglehead site.
Yes, an additional $5K if you're getting that much or more from a tax refund. Source, from the horse's mouth.
Chuck
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Re: EE bonds soon?

Post by Chuck »

I keep thinking about shifting some bond % into EE instead of Total Bond. I keep talking myself out of it. ("19 years illiquidity," "If your horizon is 20 years, just get more stocks," "Can't buy enough for it to matter," etc.)

Maybe the flip side to the last point is you can't buy enough for it to be a huge mistake, either.
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