Should quantity of i-bonds be a percentage of bonds or a certain number of years of income?

[UpQuark]

I can't decide how much money to have in i-bonds.

According to info from googling, a retired person should have 20 to 30% of their bonds in inflation protected securities. That'd be fine if I already had it there, but to buy i-bonds now I would need to pay tax (either gains or income depending where I pull from) on it, so right off it will feel like a losing proposition. I only have 6% in i-bonds currently. I used to have 5% in TIPS but for some reason I disliked them and sold them (apparently I am a one-marshmallow-now type of person, and wanted decent coupon payments instead).

I had scraped up some money last year (earmarked for i-bonds this year) but then when this year came around I changed my mind and used that money to cover doing a Roth rollover.

What percentage of your bonds are in TIPS or i-bonds? Or do you use some particular number of years of income as your goal?

Also, I'm not sure when I'd spend i-bonds, if there was rampant inflation I'd probably be spending my regular bond ladders and letting the inflation protected amount grow. But when there isn't inflation I also don't want to spend i-bonds because of not wanting to lose what little inflation protection I have.

I don't expect to live long enough to have i-bonds maturing. Did I miss the boat (I'm 68 now)? If I could go back in time I'd buy i-bonds from age 50 to 67, and then just spend them as they matured from age 70 to 87.

 

[pb4uski]

There is no magic percentage and I'd bet that many posters here have none. I have no i-bonds because I'm not interested in dealing with Treasury Direct, but I do have a small amount of TIPs. 7.4% but there is no science to it... it was just the dry powder that I had available at a point in time that TIPs seemed attractive.

 

[Al18]

You really shouldn’t rely on Google for investment advice.

There is no right or wrong answer. Many retirement folks just got out of bonds 2 years ago, and switched to CD ladders. I like iBonds because the interest is deferred until you redeem the bond. Also, there is no state tax due. You can redeem an iBond after 1 year and you loose the last 3 months of interest if you redeem before 5 years.

 

[Montecfo]

I think at min you want 5 years of spending in cash and bonds, preferably a bond ladder. That would be maybe 15%, enough to ride out a serious bear market without forced sale of equities.

I-bonds and TIPS are personal preference. Generally inflation linked treasuries have underrun treasuries over the past 20-30 years (except for a nice little run in I-bonds over the past 3-4 years). But there may be psychic benefits. My allocation to them is around 10% of my fixed income allocation.

 

[audreyh1]

You really shouldn’t rely on Google for investment advice.

+1

I don’t rely on bonds for inflation protection, I rely on the equities in my asset allocation.

There is no rule about % in inflation protected bonds.

 

[Chuckanut]

FWIW, I like to keep a certain amount of fund available for any unexpected future big expenses. The dollars to be available to me within a week or two at the most.

I keep Ibonds for that purpose figuring they are earning a rate after taxes that is a little above the overall inflation rate. And they can never go down in value so I won't be forced to sell them into a down bond market. I could lose one quarter's worth of interest within the first five years. That's a penalty I am willing to take in an emergency.

These are the only bonds I own inside of Treasury Direct.

 

[mrfeh]

My desired percentage of TIPS (and I include I Bonds in my definition of TIPS) is 20% of fixed income.

The value of my I Bonds doesn't reach that number, so I make up the difference with a TIPS mutual fund.

 

[CRLLS]

Like others, I have no magic number for I-bonds. One's % depends on an individual's goals, needs, desires, and comfort level, not to mention the I-bond's competitiveness on similar investments. I had I-bonds for a short time but currently find other places that fit my financial plan better.

I also agree that following some internet site's blanket advice without them knowing your personal financial situation is a poor method of investing.

 

[Koolau]

If I-bonds were easier to obtain in QUANTITY, I might have more but have never thought in terms of a set amount or %. The amount I can currently buy hardly move the needle vs my equities but YMMV.

 

[big-papa]

I can't decide how much money to have in i-bonds.

According to info from googling, a retired person should have 20 to 30% of their bonds in inflation protected securities. That'd be fine if I already had it there, but to buy i-bonds now I would need to pay tax (either gains or income depending where I pull from) on it, so right off it will feel like a losing proposition. I only have 6% in i-bonds currently. I used to have 5% in TIPS but for some reason I disliked them and sold them (apparently I am a one-marshmallow-now type of person, and wanted decent coupon payments instead).

I had scraped up some money last year (earmarked for i-bonds this year) but then when this year came around I changed my mind and used that money to cover doing a Roth rollover.

What percentage of your bonds are in TIPS or i-bonds? Or do you use some particular number of years of income as your goal?

Also, I'm not sure when I'd spend i-bonds, if there was rampant inflation I'd probably be spending my regular bond ladders and letting the inflation protected amount grow. But when there isn't inflation I also don't want to spend i-bonds because of not wanting to lose what little inflation protection I have.

I don't expect to live long enough to have i-bonds maturing. Did I miss the boat (I'm 68 now)? If I could go back in time I'd buy i-bonds from age 50 to 67, and then just spend them as they matured from age 70 to 87.

There is no such thing as a recommended answer for that. It's up to the individual.

100% of my bonds are inflation protected. For income from my portfolio, my bonds are all TIPS in the form of a nonrolling ladder. Income from TIPS and from SS form a nice, inflation adjusted spending floor. Right now something like 65% of our total investments are in stock, so stock doesn't have to work nearly as hard with that floor in place - I can tolerate a lot of gyrations in the market and still meet our baseline spending needs and, likely, beyond. I do not rebalance between stock and our bonds.

I also own a lot of Ibonds, none of which will start to mature until we're in our mid 80's. They're more of a Plan-B if longevity looks likely for either of us.

It's tough to talk about bonds without discussing exactly how one owns them. My TIPS are held as a non-rolling TIPS ladder of individual bonds which means I use inflation adjusted coupons and inflation adjusted return of principle as a source of real income. It is possible to something very similar with bond funds but most people don't.

Cheers.

 

[JCH10400]

I bought EE bonds through a payroll deduction plan for several years to provide additional retirement income. I'm now retired and don't need the money to live on. By coincidence, the total amount of maturing EE bonds in Treasury Direct is very close to $10,000 per year, so I just reinvest the proceeds in I bonds. If it wasn't for that money already being in TD I probably wouldn't bother with I bonds.

 

[GravitySucks]

60/40 overall and about half of the FI is TIPS.

A 10 year ladder that still has the next 2 years in corporates, 1 year of CDs, and 7 years of TIPS. As long as rates stay decent I’ll be keeping the long end of the ladder in TIPS. Though after SS kicks in I won’t need much to meet my essential expenses so the TIPS will probably drop to 30% of FI.

Still holding some bond funds that are reserved to rebalance next 20% S&P drop.

 

[QG67PK00]

When I retired in 2022, I had I-bonds balance to completely pay for 2 years of regular living expenses.

 

[hotwired]

I can't decide how much money to have in i-bonds.

According to info from googling, a retired person should have 20 to 30% of their bonds in inflation protected securities. That'd be fine if I already had it there, but to buy i-bonds now I would need to pay tax (either gains or income depending where I pull from) on it, so right off it will feel like a losing proposition. I only have 6% in i-bonds currently. I used to have 5% in TIPS but for some reason I disliked them and sold them (apparently I am a one-marshmallow-now type of person, and wanted decent coupon payments instead).

I had scraped up some money last year (earmarked for i-bonds this year) but then when this year came around I changed my mind and used that money to cover doing a Roth rollover.

What percentage of your bonds are in TIPS or i-bonds? Or do you use some particular number of years of income as your goal?

Also, I'm not sure when I'd spend i-bonds, if there was rampant inflation I'd probably be spending my regular bond ladders and letting the inflation protected amount grow. But when there isn't inflation I also don't want to spend i-bonds because of not wanting to lose what little inflation protection I have.

I don't expect to live long enough to have i-bonds maturing. Did I miss the boat (I'm 68 now)? If I could go back in time I'd buy i-bonds from age 50 to 67, and then just spend them as they matured from age 70 to 87.

I tend to use a slightly sloppy combination of art and science in my allocation. I've got roughly a Year's salary in eye bonds, all purchased at 1.3% inflation Factor and total real yield of 5.27% until December 1st. (I used 5 entities and two gift box strategies to acquire them all at once). Then I have a semi-sloppy but functional ladder going out about 10 years with roughly 40 to 60% of our annual needs each one, combination of zeros, nominal treasuries and tips. Then I committed a little bit way out to 25 and 30 years with nominal zero treasuries and tips. Total about 1 Year's current salary. My thinking with that long-term devotion was that I would either get a really good risk-free return of around 5% over 20 to 30 years, or I would get a really decent capital gain pop when the yield curve inverted and or the FED dropped / cut interest rates. So that's just my two cents, I think you can allow some art and science here. For example my ladder does not have any single wrong that will cover all of our expenses that year, but it covers enough that no matter what happens in the market I'll have enough from other places to fill in. I did forget to mention that I replaced years 3, 5 and 8 with MYGAs at 5.5 percent

 

[hotwired]

I should add that the purpose of the allocation to I bonds is that it serves as an emergency fund, but it also serves as a never maturing rung in our bond ladder. If I need some of it to supplement year three I can pull it out in year three, if we need a vehicle replacement in year 6, I can use it for that. So it just gives a little flexibility, and I love the fact that I don't pay taxes on the interest until I use it.

 

[Chuckanut]

I should add that the purpose of the allocation to I bonds is that it serves as an emergency fund, but it also serves as a never maturing rung in our bond ladder. If I need some of it to supplement year three I can pull it out in year three, if we need a vehicle replacement in year 6, I can use it for that. So it just gives a little flexibility, and I love the fact that I don't pay taxes on the interest until I use it.

I have the same idea as above.

The flexibility of Ibonds (after the 1st year) makes them a good source of emergency money when you can’t or don't want to sell other financial assets.

I use Ibonds as my emergency money. However, if rates keep falling, selling the 1.3% fixed rate Ibonds will be hard. Still it’s probably a better option that selling into a down stock or bond market.

Ibonds are like having a variable maturity date COLA’d bond that I can call at any time from 1 to 30 years.

 

[big-papa]

I have the same idea as above.

The flexibility of Ibonds (after the 1st year) makes them a good source of emergency money when you can’t or don't want to sell other financial assets.

I use Ibonds as my emergency money. However, if rates keep falling, selling the 1.3% fixed rate Ibonds will be hard. Still it’s probably a better option that selling into a down stock or bond market.

Ibonds are like having a variable maturity date COLA’d bond that I can call at any time from 1 to 30 years.

Exactly. And from a practical standpoint, the later in life they're purchased the more they resemble a true annuity in terms of "perpetually accessible" income.