The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

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SnowBog
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The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

Buy ‘EE Bonds’ to Provide Guaranteed Income
For many investors having some measure of “guaranteed income” helps them establish and realize their long-term retirement plans. There is a sense of comfort knowing they have some basic level of income they can rely on that’s independent of the market fluctuations. This income could be used to help meet their essential needs, or to cover a gap in other income sources such as social security or provide an alternative to a pension (which few have anymore).

The financial industry would typically recommend an annuity to provide this income. In truth very few annuity products are good options for investors, with arguably a Single Premium Immediate Annuity (SPIA) as the only worthy option. Downsides of a traditional SPIA include losing your investment if you die shortly after purchasing the annuity, as the insurance company would keep all the annuitant’s money and the investor’s heirs would get nothing. While there are term-certain options available, these come at their own cost of lowering your income in exchange for a guarantee.

EE Savings Bonds offer an even better alternative for many investors, providing a nearly risk-free guaranteed income, where you always retain the full value of your investment.

What are EE Bonds?
First introduced in January 1980, EE Bonds are issued by the United States Treasury and newly issued EE Bonds are guaranteed to at least double if held for 20 years. If a married couple purchased $20,000 of EE Bonds today, and did so for the next 10 years, after 20 years they are guaranteed to get paid back at least $40,000 a year for 10 years. If they wanted to extend that for 20 years, simply buy for 20 years.

Many investors are scared off by the current 0.1% rate on EE Bonds set in May 2021. Dig deeper and you will realize the “superpower” of EE Bonds is they are guaranteed to at least double at 20 years. If you consider only the 0.1% rate, after 20 years an initial $10,000 purchase is worth roughly $10,202. But on reaching its 20-year maturity, an EE Bond (if it hasn’t yet) will become worth double its original purchase price – meaning in our $10,000 example above we essentially received a 1-day return of $9,798 (brining the total value to $20,000).

Like I Bonds, EE Bonds were designed primarily for small savers/investors. You can buy a maximum of $10,000 of EE Bonds a year for each Social Security number via TreasuryDirect (treasurydirect.gov).

You cannot hold them in a special retirement account, but the taxes due are deferred until maturity or the date they are redeemed. If you redeem EE Bonds prior to five years, you’ll lose the last three months’ interest. After holding them for five years, there is no penalty for redeeming EE Bonds before maturity, except that the federal tax on the interest must be paid in the same year as the redemption.

EE Bonds offer many benefits:
  • Do-It-Yourself (DIY) Annuity. For every $1 invested in EE Bonds today, you will get back at least $2 in 20 years. This can be used to create a DIY Annuity, such as helping to offset expenses between the time you retire and the time you plan to collect social security – especially if you are delaying social security until 70. This could also help ensure you can cover any gap in “essential” expenses left from your expected social security and/or pensions. For clarity, EE Bonds are typically one [often small] part of a larger retirement savings.
  • Annuity where you keep the money. Anything invested in EE Bonds remains your money. If you die before the EE Bonds reach their 20-year maturity, the EE Bonds are passed to the co-owner, beneficiary, or the estate’s heirs. This ensures your hard-earned money remains in your estate and does not become an insurance company’s money if you die prematurely.
  • May simplify retirement planning. Some investors choose to retire before other income streams such as pensions and social security begin. Considering EE Bonds as an annuity to cover expenses during those years could reduce (or eliminate) the difference between their initial and later withdrawal rates. For example, let’s say a couple needs $90k/year of retirement income, and at 70 will receive $40k of social security/pensions/etc. meaning they’d need to withdraw $50k/year from 70+. If they retire at 60, they’ll need to withdraw $90k/year for 10 years, then $50k afterwards – which doesn’t align with typical Safe Withdrawal Rate (SWR) calculations. If the couple had purchased $20k/year of EE Bonds from ages 40 – 50, those would cover the first $40k (after doubling) of expenses, leaving them a more predictable $50k/year for all years of retirement. Note – they still need to account for inflation, so they may also want to purchase an inflation protected asset such as I Bonds if that is a concern.
  • May reduce Sequence of Returns Risk (SORR). By reducing the withdrawal needed from the portfolio – especially during the initial retirement years – you may reduce SORR. Although much is still dependent on the rest of your portfolio and your flexibility.
  • Guaranteed at least 3.53% return if held for 20 years. To double the initial investment in 20 years, the effective guaranteed return required is 3.53% (if held until 20-year maturity). Remember that at current rates, roughly 98% of that return happens in a single day when the EE Bonds reach its 20-year maturity. Conversely, holding for less than 20 years or longer than 20 years will not have the same return.
  • They’re flexible (but at a cost). They offer a tax timing option. They can be redeemed any time between one and 30 years. As noted above, 98% of the return occurs on a single day, meaning as bonds near their 20-year maturity you are losing out on significant gains. So, while they are flexible, for most investors only for the first few years of holding EE Bonds, and only if circumstances changed such that you needed this money for something else. Otherwise, you should plan for holding them for minimally – and optimally – 20 years.
  • They’re nearly risk-free. They are obligations of the U.S. Treasury, so they are even more secure than Social Security benefits. (It is possible for the U.S. Treasury to default on these bonds, so strictly speaking they are not completely free of default risk as explained above.) However, they are not inflation protected (see more below).
  • They’re tax deferred. Even though you purchase EE Bonds with after-tax money for your taxable account, they offer tax deferral for up to 30 years. You can elect to report the interest annually if you prefer, but most investors choose the default tax deferral option and thus only pay tax on the accumulated interest when they eventually redeem the EE Bonds.
  • They’re free from state and local taxation. This can mean higher after-tax returns for those investors who live in high-tax states, and they’re even better yet for folks who live in areas where they pay both state and local taxes.
  • If used for qualifying educational expenses, the interest earned is free from federal taxes.
  • You can’t lose money in nominal terms. If interest rates rise, normal bond holdings will be worth less as investors don’t want lower paying bonds. EE Bonds cannot be traded or resold on an open market (aka they are not “marketable”), thus EE Bonds will never return less in nominal terms than you invested. Conversely, EE Bonds won't gain value if interest rates fall, but they will still double in value even in a deflationary period.
EE Bond Considerations (Are EE Bonds a good choice for everyone?)
While EE Bonds offer many benefits, they may not be suitable to all investors – or at least not to all stages of their investment life cycle.

Common scenarios where EE Bonds are not appropriate for your needs:
  • You cannot commit to a 20-year investment. At current rates, for their first 19 years, 11 months, and roughly 30 days EE Bonds have an abysmal return. The payoff happens at exactly 20 years when they are guaranteed to have at least doubled. If you are unable or unwilling to commit to a 20-year investment, EE Bonds are not for you.
  • You do not have an adequate emergency fund. Investors are always recommended to establish an adequate emergency fund before investing in other options. An investor at this stage could consider I Bonds as a choice as part of their emergency fund. Recommend reviewing the I Bonds Manifesto found here: https://retirementincomejournal.com/art ... ?pdf=13017
  • You do not have enough other investments. As good as EE Bonds are – they will not provide the type of growth that most investors will require to meet their retirement needs. You should first prioritize investments into tax-advantaged accounts such as IRAs, 401ks, HSAs, etc. (ideally low-cost broadly diversified index funds following principles such as https://www.bogleheads.org/blog/who-are ... rinciples/).
  • You do not yet have other bond investments for rebalancing. Investors are recommended to establish their own Asset Allocation (AA) and rebalance by selling/buying assets to maintain their AA as needed. EE Bonds are never suitable for this purpose, thus are not recommended for your first bond investments.
  • You expect average inflation to be higher than 3.53% over the next 20 years. EE Bonds are not inflation protected. While they have some interest rate protection, such that you are guaranteed $10,000 invested will be worth at least $20,000 in 20 years, you do not know how much purchasing power that $20,000 will provide in 20 years. If the US Government is successful in sustaining their 2% inflation goal, EE Bonds beat inflation. But if average inflation over 20 years ends up being higher than 3.53%, while you’ll still get at least double your original investment – the funds would purchase less goods and services than your original investment. Note, one could consider purchasing some I Bonds in addition to EE Bonds to add in an inflation protection element as well.
  • You will be in a higher tax-bracket in 20 (to 30) years. As taxes can be deferred (for up to 30 years), ideally you align your EE Bond purchases to hit their 20-year maturity during lower taxed years (such as while you are retired). While you could delay redeeming EE Bonds for up to 30 years from purchase, those last 10 years are likely to earn far less interest. You do not want to purchase EE Bonds if you are expecting to be still working in your peak-earning (and thus taxed) years 20-30 years from now.
  • You want to get as rich as possible or die broke. EE Bonds are a conservative investment, they are best used to provide some level of guaranteed income to help provide for your needs regardless of what the world and its markets are doing. By purchasing EE Bonds, you are effectively deciding to exchange some potential upside for some downside protection against market conditions. In other words, EE Bonds will never make you rich, nor are they suitable as your only retirement investment, but they can increase your chances of a successful retirement under less-than-ideal conditions at the tradeoff of potentially having less money remaining when you die under perfect conditions. EE Bonds are thus not likely acceptable to investors who want to take on as much risk as possible and are comfortable with an AA of 100/0.
How EE Bonds work
Now let’s explore the mechanics of purchasing and redeeming EE Bonds and talk a bit about how they work. You must first open an individual account at TreasuryDirect.gov and link it to your bank account. Once your account is open, you can then make your purchases online and the Treasury will deduct the purchase price from your linked bank account.

Purchase limits. There is an annual purchase limit of $10,000 in EE Bonds in electronic form per Social Security number. A married couple could, therefore, purchase a total of $20,000 per year.

Interest - first 20 years. According to https://www.treasurydirect.gov/indiv/re ... r.htm#when, for EE Bonds issued after May 2005, interest is added monthly, compounded semiannually. TD does not show the monthly changes, but updates the value every 6 months after compounding has occurred. There is an open question on what happens if you sell during months 1 - 5 of the compounding cycle, I've reached out for clarification - but if anyone has done this and confirm - I'd welcome the input. At their 20 year mark, if needed a one-time adjustment will be applied to reach the guaranteed doubling of the initial purchase.

Interest - years 20 - 30. According to [url]https://www.treasurydirect.gov/indiv/re ... er.htm#buy, for EE Bonds issues after May 2005, the interest rate - or the way EE Bonds earn interest - may be changed in their final 10 years, but such changes would be made before the final 10 years start.

Timing your purchases. Interest is earned on the last day of each month and is posted to your account on the first day of the following month. So, if you own your EE Bonds on the last day of any month, you’ll earn that full month’s interest. Therefore, it’s best to buy your EE Bonds near the end of the month, since you can earn a full month’s interest while only owning the EE Bonds for perhaps a day or two. On the other hand, when redeeming EE Bonds, you’ll want to do so on or near the first business day of the month (ideally the month they hit their 20-year maturity and double), since redeeming them later in the month won’t earn you any additional interest.

Redeeming electronic EE Bonds. You can redeem your EE Bonds (or any portion of your bond holdings, so long as you leave at least $25 in your account) using your online account. The money is then transferred into your linked bank account.

Avoiding probate. EE Bonds don’t qualify for a step-up in cost basis at one’s death as many other investments, such as stocks and real estate, do. (EE Bonds are like bank-CDs in that regard.) But you can title them in such a way as to avoid having them included in your estate subject to probate—by having either a second co-owner or a beneficiary listed on your EE Bonds.
Last edited by SnowBog on Tue Sep 28, 2021 1:14 am, edited 5 times in total.
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SnowBog
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

With the above, I offer my attempt to create an “EE Manifesto”. I was inspired to attempt this based on Mel’s excellent I Bond Manifesto: viewtopic.php?f=10&t=358732
Mel Lindauer wrote: Thu Sep 23, 2021 10:51 pm I was pleased to be included in the crafting of this I Bond Manifesto, along with Professor Zvi Bodie, David Enna and Michael Ashton. The Manifesto was written for the Consumer Financial Protection Bureau for possible inclusion in the Bureau's recommendations for emergency fund investments.

Here's a link: https://retirementincomejournal.com/art ... ?pdf=13017
Any errors or mistakes are entirely mine.

Any value in the above I give full credit to Mel and his co-authors of the I Bond Manifesto, as I borrowed heavily from their work – including Mel’s prior post at Forbe’s https://www.forbes.com/sites/theboglehe ... c1478f7ba3.

And of course, credit also to the authors of the EE Bond Wiki: https://www.bogleheads.org/wiki/EE_savings_bonds, and numerous people contributing to EE threads over the past few years I've been here.

Hope others find this useful!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by ivgrivchuck »

SnowBog wrote: Fri Sep 24, 2021 5:50 pm
How I Bonds work
Typo, should read: "How EE bonds work"

BTW, nice overview!
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SnowBog
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

ivgrivchuck wrote: Fri Sep 24, 2021 6:23 pm
SnowBog wrote: Fri Sep 24, 2021 5:50 pm
How I Bonds work
Typo, should read: "How EE bonds work"

BTW, nice overview!
Fixed!

As I said, I borrowed (aka copied) heavily from Mel's I Bond Manifeso.

But clearly I should have done a "replace" on I Bonds! :oops:
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by LadyGeek »

This thread is now in the wiki. See: EE savings bonds (Further reading)
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dorster
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by dorster »

I recently purchased some Series I savings bonds and have been using eyebonds.info to value them for asset allocation purposes. I'll probably either do this quarterly or annually not sure yet.

Is there a similar way to value EE bonds? How do you value them in your asset allocation?

Thanks!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

dorster wrote: Fri Sep 24, 2021 7:05 pm I recently purchased some Series I savings bonds and have been using eyebonds.info to value them for asset allocation purposes. I'll probably either do this quarterly or annually not sure yet.

Is there a similar way to value EE bonds? How do you value them in your asset allocation?

Thanks!
I've seen various responses/suggestions, and have come to the same conclusion as I did for how to treat your emergency fund - do what makes sense to you (as there is no "right" answer).

But here's how I look at it:
  • I include the "current" value (viewable on TreasuryDirect) as part of my fixed income (aka bond) portion of AA
  • I do not attempt to include or adjust for their "future" value, as I'll only get that value if I hold for 20 years. And at that point, I plan to sell - effectively removing mature bonds from my AA. (Technically I include unspent cash in my fixed income as well.)
  • For projections/planning where ever possible, I exclude the value of my EE Bonds from my portfolio and instead enter them as an annuity paying out 2x purchase price starting 20 years after first purchase ending 20 years after last purchase (again I only include those actually purchased).
  • Where the above isn't possible, I just include them as bonds. This likely understates their value, but I'm OK with that - I'd rather err on the cautious side.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SafeBonds »

dorster wrote: Fri Sep 24, 2021 7:05 pm I recently purchased some Series I savings bonds and have been using eyebonds.info to value them for asset allocation purposes. I'll probably either do this quarterly or annually not sure yet.

Is there a similar way to value EE bonds? How do you value them in your asset allocation?

Thanks!
I use the market price for a treasury STRIP with $20,000 face value and the equal time to maturity as the EE Bond I am valuing. Buying $10k of EE bonds today is a a $13k-$14k value.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by tomsense76 »

Nice writeup SnowBog! :sharebeer
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by dorster »

SnowBog wrote: Fri Sep 24, 2021 7:30 pm [*] For projections/planning where ever possible, I exclude the value of my EE Bonds from my portfolio and instead enter them as an annuity paying out 2x purchase price starting 20 years after first purchase ending 20 years after last purchase (again I only include those actually purchased).
Thanks I think this is how I would try to account for them too.
SafeBonds wrote: Fri Sep 24, 2021 7:33 pm I use the market price for a treasury STRIP with $20,000 face value and the equal time to maturity as the EE Bond I am valuing. Buying $10k of EE bonds today is a a $13k-$14k value.
Any tips on how I'd find the market price for treasury STRIPs? Outside of government savings bonds I've only ever bought mutual funds and am not really familiar with the secondary bond market or how to get quotes. I have accounts at Vanguard and Fidelity but couldn't figure out where to find STRIPs prices.

Thanks in advance!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by JoMoney »

I'm not currently buying EE bonds, but I can see a lot of appeal to it for my tastes. Using something like a 50/50-or higher cash/EE-bond allocation that wasn't "rebalanced" (only adjusted with new contributions and savings.)
I might have some regrets about having to cash in an EE bond before the 20 year mark and losing that potential interest rate at the doubling, but the opportunity cost relative to having kept that money in cash/bank account at current rates is nil, so even if I mis-gauged my short-term cash needs leaning heavier to the EE bond side seems reasonable even if I do redeem early (as long as rates remain low.)
With BND's yield-to-maturity at 1.4%, and the possibility of short-term losses in BND if interest rates rise, and all the tax benefits/deferrals of savings bonds (and increased space available for stocks in retirement accounts)... There's a lot I like about this. The other side of the coin is I have a high stock allocation, something like 90/10. If I miss out earning 1-2% on the 10% of overall portfolio bond allocation it's relatively insignificant :wink: I might gauge the "simplicity" of just using a single checking, forgoing the interest and not dealing with Treasury Direct as worth it... but I might also find dealing with TD and a single checking account more "simplified" then constantly chasing whatever bank is offering best rate.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by kelvan80 »

Years ago I considered buying $10k a year for each of us but then ended up pumping that money into mortgage repayment instead since our interest rate was always between 4-6% back in the day. Thanks for renewing my interest!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by JoMoney »

Adding to my prior post, while I can find a lot of appeal to this.
Something about using cash/bonds for money I won't use for 20 years pains my bucket-allocating brain.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

JoMoney wrote: Sat Sep 25, 2021 9:17 am Adding to my prior post, while I can find a lot of appeal to this.
Something about using cash/bonds for money I won't use for 20 years pains my bucket-allocating brain.
How do you account for social security and pensions (if you get them)?

To the extent possible, that's how I think about redeeming EE Bonds, as just another income stream. They differ from social security in that you can start anytime you want (but 20 years after purchase) and they'll end 20 years after you quit purchasing them, obviously no COLA (but also no worries that SS runs out of money and your benefits are cut).
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SafeBonds »

dorster wrote: Sat Sep 25, 2021 6:17 am
SnowBog wrote: Fri Sep 24, 2021 7:30 pm [*] For projections/planning where ever possible, I exclude the value of my EE Bonds from my portfolio and instead enter them as an annuity paying out 2x purchase price starting 20 years after first purchase ending 20 years after last purchase (again I only include those actually purchased).
Thanks I think this is how I would try to account for them too.
SafeBonds wrote: Fri Sep 24, 2021 7:33 pm I use the market price for a treasury STRIP with $20,000 face value and the equal time to maturity as the EE Bond I am valuing. Buying $10k of EE bonds today is a a $13k-$14k value.
Any tips on how I'd find the market price for treasury STRIPs? Outside of government savings bonds I've only ever bought mutual funds and am not really familiar with the secondary bond market or how to get quotes. I have accounts at Vanguard and Fidelity but couldn't figure out where to find STRIPs prices.

Thanks in advance!
Here is the treasury yield website

https://www.treasury.gov/resource-cente ... data=yield

Plug the number into a bond price calculator, for example this one https://dqydj.com/bond-pricing-calculatora

Image
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by dorster »

SafeBonds wrote: Sat Sep 25, 2021 1:28 pm Here is the treasury yield website

https://www.treasury.gov/resource-cente ... data=yield

Plug the number into a bond price calculator, for example this one https://dqydj.com/bond-pricing-calculator
Got it. If you were valuing an EE Bond that you had bought 10 years ago would you use the 20-year yield (1.94) or the 10-year yield (1.47)?

I assume you would always use the current 20-year treasury yield since the idea is to price it as if it was a 20-year treasury.

Thanks for explaining this to me!

PS: It looks like there was an extra "a" tacked on to the end of the URL for the bond pricing calculator you linked to. I fixed it in the above quote.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Angst »

Nice work SnowBog!
SafeBonds wrote: Sat Sep 25, 2021 1:28 pm Here is the treasury yield website

https://www.treasury.gov/resource-cente ... data=yield

Plug the number into a bond price calculator, for example this one https://dqydj.com/bond-pricing-calculatora
Nice resource, thank you. Here's a link that goes straight to their Zero Coupon calculator:
https://dqydj.com/zero-coupon-bond-calculator/

For people who want to take advantage of this value EE Bonds presents, but are concerned about inflation or simply rising nominal rates, IF you're willing to monitor rates for the next few years or more, by plugging in 19 year rates (next year), then 18 yr rates, etc over time, into a zero coupon bond calculator you can see both what your EE Bond is hypothetically worth at that point in time and in future years, and you can compare then current rates to your EE Bond's remaining Yield to Maturity (YTM), using the table below.

As you can see, over time, it gets harder and harder to justify abandoning one's EE Bond purchase, but one does not have to blindly commit to buying/holding the EE Bond for 20 years, without recourse.

Code: Select all

Year  YTM     Years left
1     3.53%   20    
2     3.72%   19    
3     3.93%   18    
4     4.16%   17    
5     4.43%   16    
6     4.73%   15    
7     5.08%   14   
8     5.48%   13  
9     5.95%   12  
10    6.50%   11    
11    7.18%   10    
12    8.01%    9    
13    9.05%    8    
14   10.41%    7   
15   12.25%    6   
16   14.87%    5    
17   18.92%    4
18   25.99%    3
19   42.42%    2
20  100.00%    1
If, for example, you find that 3 years out you could now buy a 17-yr zero coupon Treasury paying more than 4.16% (or costing less than the ~ $10,000 you could get for redeeming your EE Bond early), you might consider whether or not selling that 3 year old EE bond could be the right choice. I monitor my youngest EE Bonds. :)

Treasury's real and nominal yield curve daily data are definitely helpful:
Real - https://www.treasury.gov/resource-cente ... &year=2021
Nominal - https://www.treasury.gov/resource-cente ... &year=2021
Last edited by Angst on Sun Sep 26, 2021 9:07 am, edited 5 times in total.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Parkinglotracer »

SnowBog wrote: Fri Sep 24, 2021 5:50 pm Buy ‘EE Bonds’ to Provide Guaranteed Income
For many investors having some measure of “guaranteed income” helps them establish and realize their long-term retirement plans. There is a sense of comfort knowing they have some basic level of income they can rely on that’s independent of the market fluctuations. This income could be used to help meet their essential needs, or to cover a gap in other income sources such as social security or provide an alternative to a pension (which few have anymore).

The financial industry would typically recommend an annuity to provide this income. In truth very few annuity products are good options for investors, with arguably a Single Premium Immediate Annuity (SPIA) as the only worthy option. Downsides of a traditional SPIA include losing your investment if you die shortly after purchasing the annuity, as the insurance company would keep all the annuitant’s money and the investor’s heirs would get nothing. While there are term-certain options available, these come at their own cost of lowering your income in exchange for a guarantee.

EE Savings Bonds offer an even better alternative for many investors, providing a nearly risk-free guaranteed income, where you always retain the full value of your investment.

What are EE Bonds?
First introduced in January 1980, EE Bonds are issued by the United States Treasury and newly issued EE Bonds are guaranteed to at least double if held for 20 years. If a married couple purchased $20,000 of EE Bonds today, and did so for the next 10 years, after 20 years they are guaranteed to get paid back at least $40,000 a year for 10 years. If they wanted to extend that for 20 years, simply buy for 20 years.

Many investors are scared off by the current 0.1% rate on EE Bonds set in May 2021. Dig deeper and you will realize the “superpower” of EE Bonds is they are guaranteed to at least double at 20 years. If you consider only the 0.1% rate, after 20 years an initial $10,000 purchase is worth roughly $10,202. But on reaching its 20-year maturity, an EE Bond (if it hasn’t yet) will become worth double its original purchase price – meaning in our $10,000 example above we essentially received a 1-day return of $9,798 (brining the total value to $20,000).

Like I Bonds, EE Bonds were designed primarily for small savers/investors. You can buy a maximum of $10,000 of EE Bonds a year for each Social Security number via TreasuryDirect (treasurydirect.gov).

You cannot hold them in a special retirement account, but the taxes due are deferred until maturity or the date they are redeemed. If you redeem EE Bonds prior to five years, you’ll lose the last three months’ interest. After holding them for five years, there is no penalty for redeeming EE Bonds before maturity, except that the federal tax on the interest must be paid in the same year as the redemption.

EE Bonds offer many benefits:
  • Do-It-Yourself (DIY) Annuity. For every $1 invested in EE Bonds today, you will get back at least $2 in 20 years. This can be used to create a DIY Annuity, such as helping to offset expenses between the time you retire and the time you plan to collect social security – especially if you are delaying social security until 70. This could also help ensure you can cover any gap in “essential” expenses left from your expected social security and/or pensions. For clarity, EE Bonds are typically one [often small] part of a larger retirement savings.
  • Annuity where you keep the money. Anything invested in EE Bonds remains your money. If you die before the EE Bonds reach their 20-year maturity, the EE Bonds are passed to the co-owner, beneficiary, or the estate’s heirs. This ensures your hard-earned money remains in your estate and does not become an insurance company’s money if you die prematurely.
  • May simplify retirement planning. Some investors choose to retire before other income streams such as pensions and social security begin. Considering EE Bonds as an annuity to cover expenses during those years could reduce (or eliminate) the difference between their initial and later withdrawal rates. For example, let’s say a couple needs $90k/year of retirement income, and at 70 will receive $40k of social security/pensions/etc. meaning they’d need to withdraw $50k/year from 70+. If they retire at 60, they’ll need to withdraw $90k/year for 10 years, then $50k afterwards – which doesn’t align with typical Safe Withdrawal Rate (SWR) calculations. If the couple had purchased $20k/year of EE Bonds from ages 40 – 50, those would cover the first $40k (after doubling) of expenses, leaving them a more predictable $50k/year for all years of retirement. Note – they still need to account for inflation, so they may also want to purchase an inflation protected asset such as I Bonds if that is a concern.
  • May reduce Sequence of Returns Risk (SORR). By reducing the withdrawal needed from the portfolio – especially during the initial retirement years – you may reduce SORR. Although much is still dependent on the rest of your portfolio and your flexibility.
  • Guaranteed at least 3.53% return if held for 20 years. To double the initial investment in 20 years, the effective guaranteed return required is 3.53% (if held until 20-year maturity). Remember that at current rates, roughly 98% of that return happens in a single day when the EE Bonds reach its 20-year maturity. Conversely, holding for less than 20 years or longer than 20 years will not have the same return.
  • They’re flexible (but at a cost). They offer a tax timing option. They can be redeemed any time between one and 30 years. As noted above, 98% of the return occurs on a single day, meaning as bonds near their 20-year maturity you are losing out on significant gains. So, while they are flexible, for most investors only for the first few years of holding EE Bonds, and only if circumstances changed such that you needed this money for something else. Otherwise, you should plan for holding them for minimally – and optimally – 20 years.
  • They’re nearly risk-free. They are obligations of the U.S. Treasury, so they are even more secure than Social Security benefits. (It is possible for the U.S. Treasury to default on these bonds, so strictly speaking they are not completely free of default risk as explained above.) However, they are not inflation protected (see more below).
  • They’re tax deferred. Even though you purchase EE Bonds with after-tax money for your taxable account, they offer tax deferral for up to 30 years. You can elect to report the interest annually if you prefer, but most investors choose the default tax deferral option and thus only pay tax on the accumulated interest when they eventually redeem the EE Bonds.
  • They’re free from state and local taxation. This can mean higher after-tax returns for those investors who live in high-tax states, and they’re even better yet for folks who live in areas where they pay both state and local taxes.
  • If used for qualifying educational expenses, the interest earned is free from federal taxes.
  • You can’t lose money in nominal terms. If interest rates rise, normal bond holdings will be worth less as investors don’t want lower paying bonds. EE Bonds cannot be traded or resold on an open market (aka they are not “marketable”), thus EE Bonds will never return less in nominal terms than you invested. Conversely, EE Bonds won't gain value if interest rates fall, but they will still double in value even in a deflationary period.
EE Bond Considerations (Are EE Bonds a good choice for everyone?)
While EE Bonds offer many benefits, they may not be suitable to all investors – or at least not to all stages of their investment life cycle.

Common scenarios where EE Bonds are not appropriate for your needs:
  • You cannot commit to a 20-year investment. At current rates, for their first 19 years, 11 months, and roughly 30 days EE Bonds have an abysmal return. The payoff happens at exactly 20 years when they are guaranteed to have at least doubled. If you are unable or unwilling to commit to a 20-year investment, EE Bonds are not for you.
  • You do not have an adequate emergency fund. Investors are always recommended to establish an adequate emergency fund before investing in other options. An investor at this stage could consider I Bonds as a choice as part of their emergency fund. Recommend reviewing the I Bonds Manifesto found here: https://retirementincomejournal.com/art ... ?pdf=13017
  • You do not have enough other investments. As good as EE Bonds are – they will not provide the type of growth that most investors will require to meet their retirement needs. You should first prioritize investments into tax-advantaged accounts such as IRAs, 401ks, HSAs, etc. (ideally low-cost broadly diversified index funds following principles such as https://www.bogleheads.org/blog/who-are ... rinciples/).
  • You do not yet have other bond investments for rebalancing. Investors are recommended to establish their own Asset Allocation (AA) and rebalance by selling/buying assets to maintain their AA as needed. EE Bonds are never suitable for this purpose, thus are not recommended for your first bond investments.
  • You expect average inflation to be higher than 3.53% over the next 20 years. EE Bonds are not inflation protected. While they have some interest rate protection, such that you are guaranteed $10,000 invested will be worth at least $20,000 in 20 years, you do not know how much purchasing power that $20,000 will provide in 20 years. If the US Government is successful in sustaining their 2% inflation goal, EE Bonds beat inflation. But if average inflation over 20 years ends up being higher than 3.53%, while you’ll still get at least double your original investment – the funds would purchase less goods and services than your original investment. Note, one could consider purchasing some I Bonds in addition to EE Bonds to add in an inflation protection element as well.
  • You will be in a higher tax-bracket in 20 (to 30) years. As taxes can be deferred (for up to 30 years), ideally you align your EE Bond purchases to hit their 20-year maturity during lower taxed years (such as while you are retired). While you could delay redeeming EE Bonds for up to 30 years from purchase, those last 10 years are likely to earn far less interest. You do not want to purchase EE Bonds if you are expecting to be still working in your peak-earning (and thus taxed) years 20-30 years from now.
  • You want to get as rich as possible or die broke. EE Bonds are a conservative investment, they are best used to provide some level of guaranteed income to help provide for your needs regardless of what the world and its markets are doing. By purchasing EE Bonds, you are effectively deciding to exchange some potential upside for some downside protection against market conditions. In other words, EE Bonds will never make you rich, nor are they suitable as your only retirement investment, but they can increase your chances of a successful retirement under less-than-ideal conditions at the tradeoff of potentially having less money remaining when you die under perfect conditions. EE Bonds are thus not likely acceptable to investors who want to take on as much risk as possible and are comfortable with an AA of 100/0.
How EE Bonds work
Now let’s explore the mechanics of purchasing and redeeming EE Bonds and talk a bit about how they work. You must first open an individual account at TreasuryDirect.gov and link it to your bank account. Once your account is open, you can then make your purchases online and the Treasury will deduct the purchase price from your linked bank account.

Purchase limits. There is an annual purchase limit of $10,000 in EE Bonds in electronic form per Social Security number. A married couple could, therefore, purchase a total of $20,000 per year.

Timing your purchases. Interest is earned on the last day of each month and is posted to your account on the first day of the following month. So, if you own your EE Bonds on the last day of any month, you’ll earn that full month’s interest. Therefore, it’s best to buy your EE Bonds near the end of the month, since you can earn a full month’s interest while only owning the EE Bonds for perhaps a day or two. On the other hand, when redeeming EE Bonds, you’ll want to do so on or near the first business day of the month (ideally the month they hit their 20-year maturity and double), since redeeming them later in the month won’t earn you any additional interest.

Redeeming electronic EE Bonds. You can redeem your EE Bonds (or any portion of your bond holdings, so long as you leave at least $25 in your account) using your online account. The money is then transferred into your linked bank account.

Avoiding probate. EE Bonds don’t qualify for a step-up in cost basis at one’s death as many other investments, such as stocks and real estate, do. (EE Bonds are like bank-CDs in that regard.) But you can title them in such a way as to avoid having them included in your estate subject to probate—by having either a second co-owner or a beneficiary listed on your EE Bonds.
Thank you - I see it alluded to above - but just to double check - one’s estate (heirs) can assume the bond’s 20 year term and get the full benefit of the bonds doubling in value?
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Iorek »

Parkinglotracer wrote: Sun Sep 26, 2021 8:49 am

Thank you - I see it alluded to above - but just to double check - one’s estate (heirs) can assume the bond’s 20 year term and get the full benefit of the bonds doubling in value?
Yes. Treasury’s website puts it this way—

Series EE and Series I
As the survivor, you have three options:
Do nothing.
Cash (redeem) the bond.
Reissue: Have the bond reissued in the survivor’s name alone.

https://www.treasurydirect.gov/indiv/re ... edeath.htm

PS thanks to OP for a great post. I slacked off buying EE for a while but will probably bump up purchases again.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by JoMoney »

SnowBog wrote: Sat Sep 25, 2021 10:52 am
JoMoney wrote: Sat Sep 25, 2021 9:17 am Adding to my prior post, while I can find a lot of appeal to this.
Something about using cash/bonds for money I won't use for 20 years pains my bucket-allocating brain.
How do you account for social security and pensions (if you get them)?

To the extent possible, that's how I think about redeeming EE Bonds, as just another income stream. They differ from social security in that you can start anytime you want (but 20 years after purchase) and they'll end 20 years after you quit purchasing them, obviously no COLA (but also no worries that SS runs out of money and your benefits are cut).
I do expect to get social security and a very small fixed pension. I don't maintain a constant-mix allocation (I'm more of a bucket'er.) I do take them into consideration with why I'm comfortable with a larger stock allocation in my discretionary investments than I might otherwise if I didn't expect those to be reliable sources of income down the road. Even if I didn't believe SS would be there, I would still have some reservations about investing money into bonds that I wouldn't be touching for 20 years! :shock:
The primary selling point to me for EE bonds would be that I could withdraw that cash early in an emergency, and I lose nothing relative to having kept that money as cash in a bank account at current rates, so even if/when short-term rates rise I can still move it to a bank and take advantage of the now higher rates and lose nothing , and if rates stay persistently low, whatever amounts I manage to not need for 20 years, I'd get a much better rate on.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SafeBonds »

dorster wrote: Sat Sep 25, 2021 5:08 pm
SafeBonds wrote: Sat Sep 25, 2021 1:28 pm Here is the treasury yield website

https://www.treasury.gov/resource-cente ... data=yield

Plug the number into a bond price calculator, for example this one https://dqydj.com/bond-pricing-calculator
Got it. If you were valuing an EE Bond that you had bought 10 years ago would you use the 20-year yield (1.94) or the 10-year yield (1.47)?

I assume you would always use the current 20-year treasury yield since the idea is to price it as if it was a 20-year treasury.

Thanks for explaining this to me!

PS: It looks like there was an extra "a" tacked on to the end of the URL for the bond pricing calculator you linked to. I fixed it in the above quote.
No, I believe an EE with10 years to maturity should be compared to a STRIP with 10 years to maturity.

I also have a specific duration target in my bond portfolio for this this purpose you want to use the EE's actual duration, not just 20 the whole time. For example If I target a duration of 8, and I buy a lot of EE bonds which bumps my overall bond portfolio's duration to 9, I can buy shorter duration bonds to get the overall bond portfolio duration back to my target of 8. For this purpose you definitely want to use the real duration of the EE, not just always 20, so for price comparison purposes I think you should use that too.

In Vanguard, you can click on "Buy Bonds & CDs" and search for the price of a STRIP of any duration you like to compare it to. But the yield to maturity difference between 20, 19, 18 year STRIPS should be close enough to not need to bother.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Parkinglotracer »

Iorek wrote: Sun Sep 26, 2021 9:00 am
Parkinglotracer wrote: Sun Sep 26, 2021 8:49 am

Thank you - I see it alluded to above - but just to double check - one’s estate (heirs) can assume the bond’s 20 year term and get the full benefit of the bonds doubling in value?
Yes. Treasury’s website puts it this way—

Series EE and Series I
As the survivor, you have three options:
Do nothing.
Cash (redeem) the bond.
Reissue: Have the bond reissued in the survivor’s name alone.

https://www.treasurydirect.gov/indiv/re ... edeath.htm

PS thanks to OP for a great post. I slacked off buying EE for a while but will probably bump up purchases again.
Thank you !
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Noobvestor »

From a risk/return perspective, EE bonds are the best things I've bought since I started Boglehead-style investing. Give them 20 years and they give you a fabulous return in today's low-rate environment. I agree with caveats about duration, etc... but they're hard to beat if you have extra money to invet beyond tax-advantaged accounts and Series I bonds purchases. I didn't realize it at the time, but I've been buying a nice annuity for years ...
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Noobvestor »

SnowBog wrote: Fri Sep 24, 2021 7:30 pm I do not attempt to include or adjust for their "future" value, as I'll only get that value if I hold for 20 years.
I used to do this as well, but I've changed my mind: I have more than enough in other assets to sustain myself until EE bonds are at 20 years. So now I count them up as if they earned ~3.5%/year annualized. Strictly speaking, it just isn't true -- if I cashed them out now I'd have to realize a big 'loss' relative to that amount. But ... I have 90%+ of my assets in other places, and I'm not worried about being forced to cash in early. YMMV.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

Noobvestor wrote: Mon Sep 27, 2021 9:16 pm
SnowBog wrote: Fri Sep 24, 2021 7:30 pm I do not attempt to include or adjust for their "future" value, as I'll only get that value if I hold for 20 years.
I used to do this as well, but I've changed my mind: I have more than enough in other assets to sustain myself until EE bonds are at 20 years. So now I count them up as if they earned ~3.5%/year annualized. Strictly speaking, it just isn't true -- if I cashed them out now I'd have to realize a big 'loss' relative to that amount. But ... I have 90%+ of my assets in other places, and I'm not worried about being forced to cash in early. YMMV.
I may revisit my approach someday... Currently, I only have 2 years of EE Bonds (started later than I would have liked to), and I'm only planning on buying EE Bonds for another 3 years (will start to have pensions/SS kicking in in 24 years). So the amount as a % of my portfolio will not be large enough to matter much no matter how I count them...

But I am stocking up on I Bonds - in an attempt to backfill for years I missed getting EE Bonds - to approximate/extend this strategy.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

Addendum: How to use I Bonds to "backfill" missing EE Bonds

Given the strict 20 year timing for this EE Bond "DIY Annuity" to kick in, its entirely possible that you didn't start on time. This may be especially true for "early retirees" - who likely weren't thinking about EE Bonds in their 20's/30's.

One potential strategy is to purchase I Bonds, attempting to "fill in" missing years for your DIY Annuity using EE Bonds.

As a real world example (our own), we started down DIY Annuity/EE Bond path in 2020 (age 44), with a "planned" retirement date in 2028 (age 52). Our goal was to offset approximately $40k of expenses (EE Bonds for both spouses) from 1st year of retirement (2029) until delayed social security @ 70 (2046). This only left up to 6 years of EE Bonds purchases within this window - covering 2040 and beyond (64 - 69).

Leaving a gap of 11 years not covered by EE Bonds, with the first gap year starting in 2029 (9 years from original purchase). Since I Bonds interest is variable, its impossible to know in advance how much is required to cover $40k in the future. But we can make some approximations:
  • Assuming a target of 2% annual inflation, $10k I Bonds will grow to roughly $12k in 9 years
  • To cover $40k in 9 years (for which we failed to buy 2x EE bonds 11 years ago), we'd need approximately 3.33 $10k I Bonds
  • To be conservative, we'll "round up" to 3.5 - and take advantage of the 0.5 ($5k) available via tax refunds
  • Leaving us a target of 3x $10k I Bonds to "backfill" the years we missed buying EE Bonds
    • 2x $10k can be purchased as normal ($10k for each spouse)
    • Remaining $10k could be purchased through a trust/entity account (what we are doing) or other non-personal account if eligible
    • My "plan C" was to use a CD Ladder, individual bond ladder, TIPS ladder, or similar if I needed more than I could purchase

This "backfills" years where EE Bonds weren't purchased 20 years prior, approximating the nominal DIY Annuity income stream.

Adjust above for your timeline (both years to cover, and how many years until start) and inflation assumptions.


In our particular case, we were only able to purchase 2x $10k I Bonds in the first year. We setup living trusts, and starting in the 2nd year purchased 2x [normal], 2x [living trusts], and 0.5x [tax refund]. While this is 1x more than "needed", we had excess cash and opted to overbuy to provide an additional level of "inflation protection" - including for the years covered by EE Bonds.

If relevant, while we've "mapped out" that we could redeem the I Bonds in approximately 9 years from purchase to approximate our $40k/year goal, we may not actually do so. Since I Bonds don't have the same strict timing as EE Bonds - we may elect to not redeem some years. If markets are "acting normal", our prioritization in early retirement years will be 0% LTCG (reducing a concentrated pre-BH stock position) and Roth conversions. But if markets are distressed, we'll tap into the I Bonds to provide the $40k (or so) of DIY Annuity like income to help bridge those years.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by willthrill81 »

Very well done OP.

My only quibble is with the phrase "nearly risk-free guaranteed income." The phrase "risk-free," though used in certain finance contexts, is in reality a misnomer as there is no such investment. As you later state, EE bonds are completely exposed to inflation risk, even more so than are traditional, marketable bonds. With the latter, higher inflation would likely be accompanied by higher interest rates, and over a 20 year time frame, the higher rates would likely more than compensate for the initial reduction in the bonds' principal value. But there is no assurance that EE bonds' interest rate would rise above their 3.53% rate, which is itself only an artifact of the Treasury's guarantee to double their nominal value at their 20 year anniversary. EE bonds current stated interest rate is only .10%. Their interest rate would have to be raised very substantially to be higher than the 3.53% achieved by the 20 year nominal doubling.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

willthrill81 wrote: Mon Sep 27, 2021 11:14 pm Very well done OP.

My only quibble is with the phrase "nearly risk-free guaranteed income." The phrase "risk-free," though used in certain finance contexts, is in reality a misnomer as there is no such investment. As you later state, EE bonds are completely exposed to inflation risk, even more so than are traditional, marketable bonds.
...
Thanks for the feedback!

I agree nothing is risk-free. As you noted I attempted to highlight the inflation risk later on, but glad you added your own perspective.

As you note:
willthrill81 wrote: Mon Sep 27, 2021 11:14 pm ... EE bonds' ... 3.53% rate, which is itself only an artifact of the Treasury's guarantee to double their nominal value at their 20 year anniversary.
The US Government (arguably nearly risk-free) is guaranteeing that I'll get at least 2x of my initial investment (income) in 20 years. If there is a better nearly risk-free guaranteed income source I can "buy" - I haven't found it...

With that perspective in mind, I'd argue EE Bonds are less impacted by interest rate risk. I may not know my purchasing power, but I absolutely know my nominal return (or ending value @ 20 years). And if we have a prolonged inflationary period that risks bringing average inflation higher than 3.53% a year over 20 years - we likely have other/bigger problems!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by slinky$ »

Thanks OP, can I post here on whether you all think ee bonds are right for me? Thinking about buying some.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by LadyGeek »

^^^ Let's keep this discussion focused on the manifesto. If you want to know whether EE Bonds are right for you, start a thread in the Personal Investments forum using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the information we need to point you in the right direction.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by willthrill81 »

SnowBog wrote: Tue Sep 28, 2021 12:40 am
willthrill81 wrote: Mon Sep 27, 2021 11:14 pm ... EE bonds' ... 3.53% rate, which is itself only an artifact of the Treasury's guarantee to double their nominal value at their 20 year anniversary.
The US Government (arguably nearly risk-free) is guaranteeing that I'll get at least 2x of my initial investment (income) in 20 years. If there is a better nearly risk-free guaranteed income source I can "buy" - I haven't found it...

With that perspective in mind, I'd argue EE Bonds are less impacted by interest rate risk. I may not know my purchasing power, but I absolutely know my nominal return (or ending value @ 20 years). And if we have a prolonged inflationary period that risks bringing average inflation higher than 3.53% a year over 20 years - we likely have other/bigger problems!
Certainly EE bonds' nominal interest rate is the best out there right now that's guaranteed by the Treasury. But I was referring to EE bonds' exposure to inflation risk, not interest rate risk. If inflation increases, interest rates are likely to increase as well, causing bond yields to go up. It's very possible that 10 year Treasuries may be yielding 3% real in 2031. EE bonds do not have this feature, at least not in the same way. Yes, the Treasury could increase the stated interest rate above the current .10%, but it seems very doubtful that they would do so in time to result in a rate higher than the 3.53% created by the doubling at the 20th anniversary. So investors shouldn't expect to get higher than a 3.53% return from EE bonds purchased today.

Still, it's indisputable that EE bonds have the highest expected (viz. the Fed's 2% inflation target) real yield guaranteed by the Treasury right now, and with the stipulations you have in the manifesto, they do make sense for some investors.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by loukycpa »

Thanks OP for the well written piece. For all the reasons you articulate above, I decided to incorporate EE bonds as part of my fixed income allocation in my taxable space. I have purchased the max for spouse and myself for two consecutive years 2020 and 2021 (so 40k total investment to date). I am 48 and plan to use these as part of bridge to delaying SS until 70. I will likely do so again in 2022.

This is situational but 2022 may be my last time for this reason. I want to retire early well before 59 1/2. Less than 30% of my investments are in my taxable space. I anticipate drawing down much of my taxable space first during my 50s when I hope to be retired. The challenge for me is if I go too crazy buying EE bonds I am afraid I won’t have enough taxable space to bridge me until 59 1/2.

I think I will have enough taxable assets in total to bridge me until 59 1/2, but not if I convert too much of it to EE bonds I would need to hold 20 years.

I am also buying max I bonds each year at the same time (40k so far) and plan to continue doing this. Once again I may be slowing on the EE bond purchases however. DIY annuity will likely be mostly max I bonds purchased over the next few years, but then with no more than 3 years of max EE bonds purchases.

Anyone else in this boat? Are Roth conversions the answer?

I think anyone considering purchasing a significant chunk of EE bonds needs to think about whether they have sufficient taxable space in coordination with their withdrawal plan.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by beyou »

Is there any special treatment of savings bonds for asset protection, similar to 401k or IRA retirement accounts ?

I do not think so, and have always assumed they are no different than other taxable account investments from a asset protection (bankruptcy and other judgments) perspective.

They do have tax benefits (deferral) like T-IRA, but that is where the similarity ends I believe.

Given one can’t sell for a year, a creditor couldn’t get the funds immediately but they could force liquidation after year 1.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by RockyR »

I have enjoyed this post very much. The S&P 20 year STRIP index shows a yield to maturity of 2.12%, so the 3.53% YTM of the EE is superior to open market alternatives. The I bond/EE bond combination provides very good fixed income inflation/deflation risk protection.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by JamesSFO »

Great piece, thank you!
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

beyou wrote: Wed Sep 29, 2021 6:46 am Is there any special treatment of savings bonds for asset protection, similar to 401k or IRA retirement accounts ?
Not that I'm aware of. But they can be purchased by a trust.

So if you have asset protection concerns, establishing a trust for that purpose, then buying Savings Bonds in the trust should meet those needs.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

loukycpa wrote: Wed Sep 29, 2021 5:51 am Anyone else in this boat? Are Roth conversions the answer?

I think anyone considering purchasing a significant chunk of EE bonds needs to think about whether they have sufficient taxable space in coordination with their withdrawal plan.
I'm definitely in this boat. (Even started buying them 2 years ago as well, and will also be stopping soon before I hit 50.)

But admittedly, I'm looking at EE Bonds primarily as "guaranteed income". When we get to 70, and have [delayed] social security & pensions kicking in, our personal situation is such we don't "need" the guaranteed income after 70 (all essential expenses are covered and some non-essential as well). Not to mention RMDs kicking in shortly afterwards...

But hypothetically, if our social security and pensions (if applicable) weren't enough to cover our "essential" expenses, I'd be very tempted to continue to purchase EE Bond for more years. And I've even toyed with buying them for another 10 years, just to cover the gap between our expected income and expenses... But so far I keep reminding myself that's what the "rest" of the portfolio is for...

As you note, continuing to buy EE Bonds may create conflicts & trade-offs. You only have so much money to invest... I'd argue maxing out tax-deferred and Roth (normal or Backdoor, and Mega Backdoor if possible) are probably a "higher priority".

As to the amount in taxable itself, I think that gets to a broader consideration for your withdrawal plan. While the "simplest" might be spend down taxable first, that may or may not be the best option for your needs.

Roth conversions, and building a 5 year rolling tax free income stream might be a great option - especially for those who retire early and would otherwise face large RMDs later in life. This can work well if you can fund the first 5 years and have enough cushion if you have lumpy expenses not covered in the conversions made 5 years earlier.

Even tapping into your 401k early might be an option (using penalty free options), at least up to a set amount (like the standard deduction). This avoids the need to let Roth conversions "season" for 5 years before you can use them. Although this obviously conflicts/overlaps with Roth conversions...

And you have other potential conflicts such as ACA subsidies, if you want to engineer your income accordingly...

So I'm not sure there's an "easy" answer (or not one that I've found) here. You are ultimately forced to pick what's most important to you, and how you balance the things that are impacted by that decision.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

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Are series EE bonds protected from creditors like IRAs?
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

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A relative who is very risk happy, all in stocks, lowish income and has no bonds except one year of I bonds wants to do an EE bond ladder, so we discussed them this morning. We both agreed that we would jump on 3.5 percent CDs for 5 or 7 year terms, which is effectively what these pay. I like the DIY annuity aspect described in the manifesto.

Where we diverge is on the 20 year aspect: Kin feels that this is a great deal, locking in 3.5 percent for 30 years. I’m very risk averse and feel that it’s too long a term and doesn’t have any benefit unless you make it the whole 20 years (I’m mid 50s).

I think it would be stressful to have to commit and wait so long and possibly not benefit at all, never seeing any amounts credited. We both feel we should have done this earlier in life, but my relative thinks there’s no time like the present and we should start now and do another 10k in January.

Neither of us needs to do this but just thinking about tying up 10k on such a gamble stresses me out. I can see coming down with a cold in year 18 and getting so pissed.

So he just did it and I probably won’t. I already do the I bonds but those make sense to me.
Last edited by AnnetteLouisan on Mon Nov 01, 2021 8:39 pm, edited 2 times in total.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

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AnnetteLouisan wrote: Mon Nov 01, 2021 11:18 am A relative who is very risk happy, all in stocks, lowish income and has no bonds except one year of I bonds wants to do an EE bond ladder, so we discussed them this morning. We both agreed that we would jump on 3.5 percent CDs for 5 or 7 year terms, which is effectively what these pay. I like the DIY annuity aspect described in the manifesto.

Where we diverge is on the 20 year aspect: Kin feels that this is a great deal, locking in 3.5 percent for 30 years. I’m very risk averse and feel that it’s too long a term and doesn’t have any benefit unless you make it the whole 20 years (I’m mid 50s).

I think it would be stressful to have to commit and wait so long and possibly not benefit at all, never seeing any amounts credited. We both feel we should have done this earlier in life, but my relative thinks there’s no time like the present and we should start now and do another 10k in January.

Neither of us needs to do this but just thinking about tying up 10k on such a gamble stresses me out. I can see coming down with a cold in year 18 and getting so pissed.

So he’ll probably do it and I won’t. Should I do it despite my concerns? I already do the I bonds but those make sense to me.
To clarify EE bonds will pay 3.5% when held for exactly 20 years. After the 20 years are up they will revert back to whatever interest rate the Treasury feels like paying, which will most likely be around 0.1%. If there are other assets such that the EE bonds are not the only fixed income, then they might be a good addition to the portfolio. Mid to late 50's is probably towards the end of the period I would purchase EE bonds, though. My order of operation has been 401k/457 -> Roth -> I Bonds -> EE bonds. I created a second Treasury Direct account for a sole proprietorship for I bonds and am debating if I want to also buy a second helping of EE bonds. I have until the end of December to make that choice, but I really doubt it because of the fact they only earn 0.1% interest until the 20th year.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by AnnetteLouisan »

Yes- I’ve maxed out all those other options. The relative in question doesn’t have any of those, is not eligible for social security and is a few years younger. So it probably makes sense for him but less sense for me.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

AnnetteLouisan wrote: Mon Nov 01, 2021 10:49 am Are series EE bonds protected from creditors like IRAs?
Directly no (or at least I don't believe so). But you can purchase EE Bonds (and I Bonds) in a trust. So if this is a concern - you could establish a trust to provide the protection from creditors - and then use the trust to purchase EE/I bonds - thus extending the protection to them.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Grt2bOutdoors »

SnowBog wrote: Mon Nov 01, 2021 6:04 pm
AnnetteLouisan wrote: Mon Nov 01, 2021 10:49 am Are series EE bonds protected from creditors like IRAs?
Directly no (or at least I don't believe so). But you can purchase EE Bonds (and I Bonds) in a trust. So if this is a concern - you could establish a trust to provide the protection from creditors - and then use the trust to purchase EE/I bonds - thus extending the protection to them.
I believe for you to obtain creditor protection the trust would need to be irrevocable. A revocable trust implies you can easily access the assets within or change the terms at any time, would think a court of law would view those assets as fair game.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by SnowBog »

AnnetteLouisan wrote: Mon Nov 01, 2021 11:18 am A relative who is very risk happy, all in stocks, lowish income and has no bonds except one year of I bonds wants to do an EE bond ladder, so we discussed them this morning. We both agreed that we would jump on 3.5 percent CDs for 5 or 7 year terms, which is effectively what these pay. I like the DIY annuity aspect described in the manifesto.

Where we diverge is on the 20 year aspect: Kin feels that this is a great deal, locking in 3.5 percent for 30 years. I’m very risk averse and feel that it’s too long a term and doesn’t have any benefit unless you make it the whole 20 years (I’m mid 50s).

I think it would be stressful to have to commit and wait so long and possibly not benefit at all, never seeing any amounts credited. We both feel we should have done this earlier in life, but my relative thinks there’s no time like the present and we should start now and do another 10k in January.

Neither of us needs to do this but just thinking about tying up 10k on such a gamble stresses me out. I can see coming down with a cold in year 18 and getting so pissed.

So he just it and I probably won’t. I already do the I bonds but those make sense to me.
I think it largely depends on:
  • Why you are buying EE Bonds
  • What your investment timeline looks like
  • What your estate plan looks like
For example, I'm purchasing them for the "DIY Annuity" aspect as mentioned in the post, with the intention of covering the years between retirement (hopefully < 55) and delayed social security (70). As such, I don't plan to purchase EE Bonds after I turn 50 - as any after that date would mature when I don't need them anymore (as in my case they were to bridge to SS).

But let's figure someone who doesn't have a pension, and even after social security they still have $20k of "essential" expenses that need to be covered + $30k of "discretionary" expenses. They might opt to continue purchasing $10k of EE Bonds (for $20k in 20 years) to ensure - regardless of market outcomes their "essential" expenses are covered. Such a person might continue to buy EE Bonds perhaps until their 70's or beyond (depending on their expectations for life expectancy). This might be especially true if they plan to leave their EE Bonds to heirs - who could leave them mature to reach 20 years for maximum benefit. But if their estate plan is to give everything to charity, its far more likely these would be liquidated and sold - so they'd likely start being more cautious with purchasing EE Bonds in later years.

Per your example, if you are looking at EE Bonds as a "short term CD" - I'd say "don't do it." EE Bonds are not a short term investment. You really need to be committed to holding them for 20 years, at which point they are likely a very good fixed income investment. If you can't commit to holding EE Bonds for 20 years, they are a horrible investment - as the current rates of 0.1% are not attractive (you are losing money to inflation each year). "Short term" needs would be better aligned to I Bonds. While the rate is variable (unless we end up with a "fixed" rate > 0% in the future), conceptually they will track inflation - which is probably better than most CD's, bank accounts, etc. you'll find. And for the example above, they might choose to buy $20k of I Bonds vs. $10k of EE Bonds - to remove both "market" and "inflation" risks - ensuring they have an inflation adjusted $20k redeemable each year as needed to cover "essential" expenses.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by JBTX »

In late 20 and early this year we bought $20k eebonds each for the first time. I like the idea of having some laddered income at a locked in 3.5%. However I am starting to second guess the decision and I may very well liquidate after the first year, because

- almost all of our investments are in tax advantaged investments, and to keep plowing money into them would mean needing to liquidate retirement accounts or stop contributing to retirement accounts. That doesn't seem like a good trade off

- at 58 years old, I'd have to keep it to 78. This seems like it is pushing the upper end of when they make sense.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by mary1969 »

We have been buying the full allotment of EE bonds and I bonds since 2011 (at age 46). We will continue to do so in this interest rate environment. EE bonds are our annuity. Not sure what our long term plans are on the I bonds.

One issue we had this year is we have always purchased them in our trust ($10k each for my spouse and I) in the month of January. After reading that you could buy another $10k outside of your trust, we each purchased another $10k In July in our individual names. The purchased was denied though by Treasury Direct and they stated that we exceeded our purchase limit.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by quattro73 »

mary1969 wrote: Mon Nov 01, 2021 8:09 pm We have been buying the full allotment of EE bonds and I bonds since 2011 (at age 46). We will continue to do so in this interest rate environment. EE bonds are our annuity. Not sure what our long term plans are on the I bonds.

One issue we had this year is we have always purchased them in our trust ($10k each for my spouse and I) in the month of January. After reading that you could buy another $10k outside of your trust, we each purchased another $10k In July in our individual names. The purchased was denied though by Treasury Direct and they stated that we exceeded our purchase limit.
Do you have a separate TIN for your trust or are you using your SSN?
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by mary1969 »

No separate TIN...same social security for trusts and individual accounts. The first few years we purchased them it was in our individual names and then in 2013 we started buying them in our Trust.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by quattro73 »

I think that is your issue. It goes by the TIN, I believe.
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Re: The EE Bond Manifesto (A companion piece to Mel’s I Bond Manifesto)

Post by Grt2bOutdoors »

quattro73 wrote: Mon Nov 01, 2021 8:40 pm I think that is your issue. It goes by the TIN, I believe.
Are you sure? There are many on the forum who use living trusts to purchase savings bonds using their TIN and then purchase individually as well. Here’s an article from The Finance Buff which lays out the mechanics of it: https://thefinancebuff.com/buy-more-i-b ... trust.html

See the section on Tax ID. The OP should have reached out to customer service to understand why the purchase was blocked.
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