pugchief wrote: jhogue wrote:
pugchief wrote:Sophie & jhogue,
Sorry if my last post came off as snarky or snotty; that was not my intention. I love and respect most everyone here! Was just looking for an answer / trying to make my point.
No offense taken.
In fact, I welcome your sharp questioning of my argument. If I can convince you to buy I bonds, I think I could convince anybody. If I can't, there is probably some weakness in my argument.
Glad to hear that.
And so another issue is that pesky $10k limit. Not married. Then what?
If you have $10K or more per year to invest in fixed income or PP Cash, I think you should consider a long term strategy of building your own savings bond ladder.
(Cue up “Stairway to Heaven”, with cameo appearance by Sophie):
HOW DO I BOOST MY ANNUAL SAVINGS BOND ALLOCATION TO MY LADDER?
1. “Deep cash”:
$10K per SSN for electronic I bonds
$5 K with tax return (cool paper I-bonds)
$10K with trust
2. “Deeper cash”:
$10 K EE bonds (doubles in 20 years, or 3.53% guaranteed)
Total : $35K per year.
-$350K for a 10 year ladder.
-$700K for a 20 year ladder.
-$1.05 M. for a 30 year ladder.
UNIQUE AND AMAZING I BOND LADDER QUALITIES:
-Earned interest compounds for 30 years (no CD has that)
-Automatic tax deferral outside IRAs for 30 years (no CD has that)
-Inflation-protection for 30 years/ rate resets 60 times (no CD has that)
WHAT DO I DO WITH ALL MY CDs LOCKED UP IN IRAs (Desert might ask)?
Note that I am NOT saying you should run out and sell all your CDs tomorrow.
- A ladder of 5 year CDs (regardless of how many rungs you put in it) has a 20% turnover every year. As your CDs mature, start transferring these funds to your I bond annual allocation instead of rolling them over, in or out of an IRA.
-Yes, you may feel a pinch to pay the taxes on interest earned when you unwind a CD ladder inside of an IRA. This too shall pass. When you reach age 70 ½, the IRS will force you to take distributions from that IRA in the form of RMDs anyway. In fact, investing new money in US savings bonds after age 40 ½ is an excellent way to legally circumvent the RMD rule on traditional IRAs (for a while). CDs in traditional IRAs can’t do that. Lastly, remind yourself that taxes are a first world problem with first world solutions (i.e., retire and move to tax-friendlier Florida or open carry-friendly Texas/Arizona.)
-Don’t forget the long term effect of inflation on fixed income assets. If Janet Yellen and her ilk get their constant 2% inflation rate, your 5 year CD will lose nearly 10% of its original value by its maturity date. Compounded over 30 years, even a historically low average of 2% inflation rate could easily eat up 50-60% of your investment. I bonds lose 0% to inflation.
-If you still have money left over in Short Term Treasuries (“shallow cash”) after buying your full savings bond annual allocation, use Sophie’s “tax trickery” technique to boost your effective yield. For amounts over $250K, I would still practice institutional diversification as Craigr and Medium Tex described in their book.
-My simple rule is that if you have savings to set aside from ordinary income, you should fill up your savings bond annual quota first. It is kind of analogous to filling up your Roth IRA before your 401k, 457b, SEP-IRA, etc.