Okay, here's something really interesting. It may seem silly, but hear me out.
I-series savings bonds don't lose money, and they're linked to inflation. You can buy up to $10,000 per year. They earn a combination of a fixed rate return and an inflation-based return. They're intended to be held for five years, but if you sell them before that, there's only a three-month interest penalty.
The new interest rate is calculated quarterly, so if inflation goes down then the return will be adjusted. But say for example you buy $10,000 worth, and the rate drops from 7.12 to 2.5 percent over the next 12 months. By my calculations you're still earning 4.2 percent on that money if you drop it at one year and forfeit the last 3 months. What's the argument against this?
I'm strongly considering having my wife and me each purchase $10,000 worth right now. We're edging toward retirement so I'd be delighted to get a return in that range with no risk.
There are a number of stories about it popping up, so I think it's a legit strategy to get a reasonable guaranteed return. [Reply]
Originally Posted by Rain Man:
Okay, here's something really interesting. It may seem silly, but hear me out.
I-series savings bonds don't lose money, and they're linked to inflation. You can buy up to $10,000 per year. They earn a combination of a fixed rate return and an inflation-based return. They're intended to be held for five years, but if you sell them before that, there's only a three-month interest penalty.
The new interest rate is calculated quarterly, so if inflation goes down then the return will be adjusted. But say for example you buy $10,000 worth, and the rate drops from 7.12 to 2.5 percent over the next 12 months. By my calculations you're still earning 4.2 percent on that money if you drop it at one year and forfeit the last 3 months. What's the argument against this?
I'm strongly considering having my wife and me each purchase $10,000 worth right now. We're edging toward retirement so I'd be delighted to get a return in that range with no risk.
There are a number of stories about it popping up, so I think it's a legit strategy to get a reasonable guaranteed return.
That's very interesting. And it looks like you can sell any time and the only penalty is the previous 3 months of interest.
I don't know much about this. Hopefully someone else can chime in. [Reply]
Originally Posted by MTG#10:
Getting rich takes time and patience.
Let's spin this off. What is rich?
They recommend the following being saved based on age, ending at 10x your salary by retirement.
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
I am shooting to have at least 20x my salary by 65. It's not easy though. We live pretty frugally for most things given that we only have my income and we are saving 20-25% of our income each year into investments.
And you actually need less money saved if you work until you're older in life. So many people think they can retire early, but don't realize they need MORE capital to start with because their drawdown period will be so much longer.
Originally Posted by lewdog:
That's very interesting. And it looks like you can sell any time and the only penalty is the previous 3 months of interest.
I don't know much about this. Hopefully someone else can chime in.
Yeah, that's the thing. From what I'm reading as long as you make a one-year commitment it's pretty liquid after that. You're not going to get rich off of it given the interest and purchase limits, but it's looking to me like a great place to park some money as a hedge against a stock pullback, and make a much better return than putting it into some cash account. Other than just opportunity cost if you're in an aggressive investing mode, I don't see a downside. [Reply]
Originally Posted by lewdog:
Let's spin this off. What is rich?
They recommend the following being saved based on age, ending at 10x your salary by retirement.
Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
I am shooting to have at least 20x my salary by 65. It's not easy though. We live pretty frugally for most things given that we only have my income and we are saving 20-25% of our income each year into investments.
And you actually need less money saved if you work until you're older in life. So many people think they can retire early, but don't realize they need MORE capital to start with because their drawdown period will be so much longer.
I've run the numbers for myself, and while they're not completely generalizable due to some unique things to my household (e.g., my assets in IRA versus investment accounts), I concluded that I need about 20 times my salary to maintain my standard of living to age 99 without tapping into home equity. This assumes 3.2 percent inflation and investment returns in roughly the 4.5 percent range annually. So 20 times your salary isn't rich, but it'll give you a good likelihood of retiring with no financial compromises. [Reply]
Originally Posted by Rain Man:
I've run the numbers for myself, and while they're not completely generalizable due to some unique things to my household (e.g., my assets in IRA versus investment accounts), I concluded that I need about 20 time my salary to maintain my standard of living to age 99 without tapping into home equity. This assumes 3.2 percent inflation and investment returns in roughly the 4.5 percent range annually. So 20 times your salary isn't rich, but it'll give you a good likelihood of retiring with no financial compromises.
You are exactly on point. That's why 20x is my goal too. It will allow me to live a comfortable life without a worry for money if I live into my 90's.
This may not be "rich" by certain standards, but living stress free financially for decades is pretty fulfilling.
Series I bonds are probably one of the only "safe" places for money currently. I think they're a pretty good deal if you can withstand the 1 year holding req.
I guess the other downside is no fixed rate, right now. They were pretty stingy with that fixed rate portion even when the fed raised rates a few years back. I think I got some w/ .5% fixed. woo! [Reply]
Originally Posted by ChiliConCarnage:
Series I bonds are probably one of the only "safe" places for money currently. I think they're a pretty good deal if you can withstand the 1 year holding req.
I guess the other downside is no fixed rate, right now. They were pretty stingy with that fixed rate portion even when the fed raised rates a few years back. I think I got some w/ .5% fixed. woo!
Yeah, I think the fixed rate is 0 right now. So if inflation drops to 0, then the payment drops to 0 percent. But in that scenario you'd just sell the bonds and there'd effectively be no penalty for doing so and you'd still get the interest that's accrued at the 7.12 rate.
I'll do a little more due diligence, but at the moment I'm leaning toward maxing out on purchases for it. [Reply]
Originally Posted by Rain Man:
Yeah, I think the fixed rate is 0 right now. So if inflation drops to 0, then the payment drops to 0 percent. But in that scenario you'd just sell the bonds and there'd effectively be no penalty for doing so and you'd still get the interest that's accrued at the 7.12 rate.
I'll do a little more due diligence, but at the moment I'm leaning toward maxing out on purchases for it.
Geez Rain, you're acting like you're 80 years old. You want to look back in a year at that Index fund you could have made 16% with or Netflix you could have made 40% with, or TSLA that will be sitting at $1500 a share. [Reply]
Originally Posted by Hog's Gone Fishin:
Geez Rain, you're acting like you're 80 years old. You want to look back in a year at that Index fund you could have made 16% with or Netflix you could have made 40% with, or TSLA that will be sitting at $1500 a share.
Get off my lawn, ya dagnabbed whippersnapper.
But ... yeah, maybe. I still have the aggressive heart of an investing warrior, but I've run the numbers and a 3.5 percent post-retirement return buys me the life I want. So I want the lowest-stress way to make that 3.5 percent. [Reply]