Our topic on this episode of the Ready for Retirement podcast is about the recent iBond paying 7.12%.
Questions answered: Should you invest in iBonds paying 7.12%? What strategies can you implement to ensure you create your ideal retirement? What is the best strategy for your individual situation?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
We’re on YouTube!
Check us out here for more content to help you create a secure retirement: YouTube – Root Financial Partners
Key Points
- What are iBonds?
- What is an iBond? Is that something I can purchase in my investment account?
- They are issued by the United States treasury, which means corporations don’t issue these, your bank is not issuing these; these are issued by the United States of America.
- iBonds have a fixed rate of interest.
- Inflation Adjustment
- So today, as I’m recording this, the fixed rate is 0%. So there’s no actual interest from them. But the inflation adjustment amount is exactly 7.12%. As of this recording that will reset in April of 2022. Every six months that inflation adjustment is reset.
- Understanding iBonds
- If inflation stays high, if it stays exactly where it is, then the yield will stay exactly where it is at 7.12%. If inflation increases the iBond yield will increase. If the inflation rate decreases the iBond yield will decrease.
- It’s a savings bond where you’re actually going to be able to hedge against inflation a lot better than you’re going to be able to do so in a regular savings account.
- Holding Period
- Although it’s a 30 year bond, you don’t actually have to hold the iBond for 30 years. You do have to hold the bond for at least one year (minimum). And if you hold it for between one year and five years, you can access the bond, but you’re going to pay a penalty for that early redemption. And right now that penalty is the final three months of interest.
- Example
- If you hold the bond for two years and you are fully credited for all the interest that’d be 21 months of that time period, the last three months interest, you would forfeit that as that’s the penalty for not holding your bond for at least five years. If you hold it for five years, then you can redeem after that time period with no penalty at all.
- Maximum Amount Allowed
- The most that you can purchase in any year is $10,000 worth of iBonds. So if you’re a married couple, the most that you could purchase as a couple is $20,000.
- Personal Experience
- I had a difficult time purchasing iBonds and I didn’t feel the value I would receive was worth all of the time and additional hoops required to get iBonds.
- Taxes
- You are still paying federal taxes. If you live in a state where they’re state income taxes, you don’t have to pay taxes at the state level. So that’s another benefit. So the benefits are a high rate of interest. It adjusts with inflation.
- Summary
- There are certainly pros and cons to iBonds, but I’ve found the time and effort involved isn’t worth the slightly higher benefit. It is one more notarization required, one more tax form to track, one more account to open, etc.
Timestamps
1:30 – Listener Question
4:29 – iBond Summary
6:48 – Holding Periods
9:30 – My Experience
13:52 – Mental Bandwidth
16:18 – Tax Implications
20:21 – Aligning Your Investments With Your Financial Goals
Leave a Reply