I Bond rate 5/2021

[njhowie]

Quote:

Originally Posted by tdv2 I started acquiring IBonds recently....sure it's small potatoes for some of us....$20k per year per couple.

Ignore those who poo-poo an investment because the caps are too low for their massive portfolios. That is no reason "for you" or most others to ignore good returns relative to what else is out there for the equivalent risk.

Should the November reset put the I Bond at 6%, that will be 6x the going 1% 5-year CD rate. Your $20,000 in I Bonds will command as much heft as $120,000 someone chooses to put in to the CD. That's no longer small potatoes.

[Koolau]

I'm curious (just curious) where folks get (end up with) all this cash that they consider putting in I-bonds - yeah, I know, it's only $20K. I've whined before that I had too much qualified money in my port. Now, to get the cash to live on, I must take RMDs (and maybe a little more) to cover my yearly expenses. At the start of the year I have a nice chunk of cash, but it's mostly gone by year end.

It's true that if I just wanted some cash (to have and to hold OR to put into I-bonds) I could invade my Roth IRAs - but why would I? They are my "gold standard" and BETTER than cash.

I could take from my taxable in my portfolio (but I'd likely owe at least some taxes on it.) I have a good chunk in the S&P500 in taxable, but I've been "proud" of myself for allowing my total equities to climb to (wait for it) almost 35% of my portfolio.

I "live" on my SS and modest pension (so there's really nothing left to invest in I-bonds.) And, as pointed out, I NEED my RMDs to live on as well. I was taking RMDs (well, qualified money that I had to pay taxes on) BEFORE I was forced by law to take the money.

So, again, if anyone wants to share, I'd be "curious" how folks end up with "loose" cash that's actually investable (NOT needed for every-day stuff like mine is.) Oh, and I'm not poor. I have "enough" barring any true "black swans." My "mix" is not ideal, perhaps, but that isn't easily remedied at this late date. YMMV

[RetireAge50]

Hmmm. Starting to think more seriously about taking out a fixed rate loan at what are they now 2% and putting them into these I bonds. Risk free spread. Something seems out of whack.

[Sunset]

Quote:

Originally Posted by Koolau I'm curious (just curious) where folks get (end up with) all this cash that they consider putting in I-bonds - yeah, I know, it's only $20K. I've whined before that I had too much qualified money in my port. Now, to get the cash to live on, I must take RMDs (and maybe a little more) to cover my yearly expenses. At the start of the year I have a nice chunk of cash, but it's mostly gone by year end. ...

You could take an extra $20K out of your 401K/IRA in addition to your normal RMD amount.
Things to be mindful are: would it cause IRMAA / NITT / push you into a higher marginal tax bracket ?
Some else can chime in if I forgot some extra taxation effect.

If none of those apply it won't cost you extra per dollar to do so.

There may even be a benefit for doing it for a number of years, it may depending upon your 401K/IRA, push down the RMD number to a lower overall marginal tax rate. (Unlikely but possible in theory).

[LarryMelman]

You don't need to cite Bogelheads. You can do the calculation for yourself. The CPI reported in April was 264.877. The CPI reported this week was 273.567. That is an increase of 3.28%. And there is one more month in the 6-month cycle. If next month's number is flat to this month, then the inflation based rate on new bonds starting in November would be 6.56% (assuming the fixed rate stays at 0). That's the highest inflation-based rate in the history of I-bonds back to 1998.

It is important to understand how this works. If you bought in September or October, you'd get 3.54% for the first 6 months. Then it will adjust up to 6+% for the next 6 months. But if you wait till November, you will start at 6+%.

[Koolau]

Quote:

Originally Posted by Sunset You could take an extra $20K out of your 401K/IRA in addition to your normal RMD amount. Things to be mindful are: would it cause IRMAA / NITT / push you into a higher marginal tax bracket ? Some else can chime in if I forgot some extra taxation effect. If none of those apply it won't cost you extra per dollar to do so. There may even be a benefit for doing it for a number of years, it may depending upon your 401K/IRA, push down the RMD number to a lower overall marginal tax rate. (Unlikely but possible in theory).

Interesting you mention this. I've actually been ruminating on taking extra from 401(k). No worry on IRMAA etc. and I won't get into the next tax bracket. So, why NOT take it out now, pay the taxes and have a bit of extra cash? So far, RMDs are not a big deal, but as I age, they might just push me into the danger zone on either taxes or IRMAA or both. Taking money now COULD just "save" me later. YMMV

[USGrant1962]

Having hit 59.5 this week, I'm starting to think about leveling 401(k)/tIRA withdrawals to mitigate the RMD tax bomb. I'm over weighted in tax deferred. In addition to considering Roth conversions, using some of that to fund my annual iBond purchase seems attractive.

[sengsational]

Once you drop in your $20K for the year in I-Bonds, I thought going for the "too big to fail" corporate bonds. I'm sure I'm not to first to think of this, but if the government would probably bail-out these big corporations, couldn't you just buy the TBTF corporate bonds and get around the puny treasury rates? I have no idea what these bonds are paying, but the thought just occurred to me. Those here that spend more time thinking about such things can remind me how daft I am, hehehe!

[njhowie]

Quote:

Originally Posted by sengsational Once you drop in your $20K for the year in I-Bonds, I thought going for the "too big to fail" corporate bonds. I'm sure I'm not to first to think of this, but if the government would probably bail-out these big corporations, couldn't you just buy the TBTF corporate bonds and get around the puny treasury rates? I have no idea what these bonds are paying, but the thought just occurred to me. Those here that spend more time thinking about such things can remind me how daft I am, hehehe!

See attached for what corporates are paying relative to everything else. The interest rate risk is not worth it in my view. The yields are too low.

Note that the yields shown are for the highest yielding bond currently offered in each category. So, your TBTF corporates are likely yielding below the yield indicated.

[sengsational]

Yeah, I agree. Why take any risk at all for such measly pickings.

My mom just sold her house and is sitting on cash in her Fidelity account and asked me what to do with it. She had mostly of her savings in a few utility stocks, where my dad had it before he passed. Those show a yield of 4% right now. She also had a few years of cash after selling a stock position a few years back. Now she's got many years of cash that's getting eaten by inflation. I'm inclined to suggest keeping a few years in cash and putting the rest in the utilities. If worse came to worse, she has 7 kids, and most of them could chip in to prevent her from having to sell low, if that ever came up on the horizon. Inflation is a scourge on people in her position.

[njhowie]

4% is not bad at all for solid utility companies right now. As long as her primary interest is in the income stream they throw off as opposed to asset value. Reason being, should we see interest rate hikes, utilities are likely some of the first that will see share price declines. Dividends will be protected and should continue to grow over time, so the income stream will continue. However, she may see the bottom line on the portfolio shed some value over the near/medium term.

[Koolau]

Quote:

Originally Posted by sengsational Yeah, I agree. Why take any risk at all for such measly pickings. My mom just sold her house and is sitting on cash in her Fidelity account and asked me what to do with it. She had mostly of her savings in a few utility stocks, where my dad had it before he passed. Those show a yield of 4% right now. She also had a few years of cash after selling a stock position a few years back. Now she's got many years of cash that's getting eaten by inflation. I'm inclined to suggest keeping a few years in cash and putting the rest in the utilities. If worse came to worse, she has 7 kids, and most of them could chip in to prevent her from having to sell low, if that ever came up on the horizon. Inflation is a scourge on people in her position.

I agree that inflation is a scourge - especially if you have a lot of cash. I'm looking on the bright side in my case: At my age, unless inflation really gets bad, I'll die before my stash is even close to being wiped out by inflation. I'm considering some ideas right now - possibly even the "token" idea of I-bonds. I love my old I bonds - the ones that actually pay some real interest, but it will make me cringe to "only" stay even (on paper) with $20K of my cash - and then have to pay taxes some day. What a pain.

[njhowie]

Quote:

Originally Posted by LarryMelman You don't need to cite Bogelheads. You can do the calculation for yourself. The CPI reported in April was 264.877. The CPI reported this week was 273.567. That is an increase of 3.28%. And there is one more month in the 6-month cycle. If next month's number is flat to this month, then the inflation based rate on new bonds starting in November would be 6.56% (assuming the fixed rate stays at 0). That's the highest inflation-based rate in the history of I-bonds back to 1998. It is important to understand how this works. If you bought in September or October, you'd get 3.54% for the first 6 months. Then it will adjust up to 6+% for the next 6 months. But if you wait till November, you will start at 6+%.

Reported this morning:

Quote:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 5.4 percent over the last 12 months to an index level of 274.310 (1982-84=100).

So, 264.877 to 274.31 is 3.56%, suggesting new I Bond rate beginning November 1 will be 7.12%.

[Golden sunsets]

Quote:

Originally Posted by njhowie Reported this morning: So, 264.877 to 274.31 is 3.56%, suggesting new I Bond rate beginning November 1 will be 7.12%.

Wow and for those of us with a fixed rate component (ours are is 1%), the rate will be 8.1154%. I'll take it.

[Montecfo]

It's a nice rate. A very nice rate. Just not sure how I would have ever have gotten meaningful position.

I'm kind of on the fence now as to whether to do it.

[Golden sunsets]

Quote:

Originally Posted by Montecfo It's a nice rate. A very nice rate. Just not sure how I would have ever have gotten meaningful position. I'm kind of on the fence now as to whether to do it.

Yeah. The cap used to be $30K per person per year.

[Trailwalker]

Anyone have guidance on whether to buy these before or after November 1st? Tipswatch says before, and I'm not sure I understand why.

[njhowie]

Quote:

Originally Posted by Trailwalker Anyone have guidance on whether to buy these before or after November 1st? Tipswatch says before, and I'm not sure I understand why.

I would tend to agree with before. The difference is when you begin to collect the 6 months of 7.12% - either as of Nov 1, or May 1, 2022. Either way, you will get 6 months interest at the 7.12% rate.

The logic saying to buy before Nov 1, is that for the first 6 months you would get the current 3.54% rate, which is well above the long term average I Bond rate. That being the case, 3.54% is a very good rate, which will likely also be above future rates as things settle down. So, by purchasing before Nov 1, you'll get 6 months of the 3.54% immediately followed by 6 months of 7.12%, as opposed to ditching the 3.54%.

Think of it this way - there's no comparable place else to get the 3.54%, not CDs, not savings, etc.

[audreyh1]

Quote:

Originally Posted by Trailwalker Anyone have guidance on whether to buy these before or after November 1st? Tipswatch says before, and I'm not sure I understand why.

If you buy before, you will be stuck with the old lower rate for six months before switching to the new higher rate. If you buy afterwards, you’ll get the new higher rate immediately.

So I don’t get the buy before recommendation.

The rate at last 6 months of 30 years would break any tie.

[ivinsfan]

Quote:

Originally Posted by audreyh1 If you buy before, you will be stuck with the old lower rate for six months before switching to the new higher rate. If you buy afterwards, you’ll get the new higher rate immediately. So I don’t get the buy before recommendation. The rate at last 6 months of 30 years would break any tie.

30 years now that's what they call the long game...