Cashed in EE bonds now what

[jmlrn]

Cashed in $56,000 of series EE bonds. I put $7,500 in my ROTH. Not sure the best strategy for the rest. I could do a 1 year fixed rate CD at 4.15% or a 3 month fixed rate at 3.25% and reevaluate the economic situation. However I don't think the economic situation will be trending up in that amount of time to make me confident enough to put this in my brokerage account. Would you buy a $10,000 I bond and CD the rest for a year? Put it in the brokerage and watch it lose value for the next year of so? I am a little more than 4 years out from retirement and not on track to meet my needs monthly with the amount I have saved.

[Tiny]

Is having $ in I-bonds (ie money that when you redeem it plays nicely with your other sources of income) part of your retirement plan? If it is - it's kind of convenient to be able to get the 5 year clock ticking on the first 10K in I-Bonds.


I'm just throwing this out there - as you are 4 to 5 years from retirement - will you have a "cash" component or "cushion" when you actually retire or will all your $$ be in tax advantaged accounts, pension, SS?

I'm just asking about this because if you will need to structure where your income is coming from in retirement - now may be the time to start getting those ducks in a row.

That may help you decide how best to use the money.

[Tiny]

FYI: I don't think Treasury Direct will send you a tax form for your redemption. You may need to log into you account and request it/print it.

[giramomma]

What's the tax implication of cashing in that much in bonds? (If you are married, then you have more taxable income to work with).

Does your current employer offer pre-tax retirement accounts (ie, a 401K)?

[jmlrn]

I have about a 2 year cushion in cash. The rest in tax advantaged accounts. I already know retirement will be tight. I just know I can't go physically another 8 years working in my profession.

The bonds have already been cashed and are sitting in my checking account. I could contribute some to my 403B but I am trying to avoid losing 18% of my money like the past few years.

[giramomma]

If you don't have the money to cover your bills when you retire, then you need your money to work hard for you. Which means, investing in the market.

Is there any way you can reduce your costs to close the gap? Delay retirement for a year or two?

How are you defining retirement?

I am going to retire from my state job when I get a full pension. So, technically, I will be retired. I will have to work part time, in retirement. So, I'm not really retiring. I call it slowing down.

How many years do you anticipate being in retirement?

[giramomma]

Jan 12, 2023 16:40:27 GMT -5 jmlrn said:

I have about a 2 year cushion in cash. The rest in tax advantaged accounts. I already know retirement will be tight. I just know I can't go physically another 8 years working in my profession.

The bonds have already been cashed and are sitting in my checking account.

Can you get a j-o-b at a part time place? My plan is to find a part time office job working as admin staff in a house of worship or something. That's not related to either of my professions.

[jmlrn]

Jan 12, 2023 16:08:11 GMT -5 Tiny said:

FYI: I don't think Treasury Direct will send you a tax form for your redemption. You may need to log into you account and request it/print it.

I got that when I cashed them in at the bank. Anyway that is income for 2023 I don't have to worry about that yet.

[jmlrn]

Jan 12, 2023 16:42:48 GMT -5 giramomma said:

Jan 12, 2023 16:40:27 GMT -5 jmlrn said:

I have about a 2 year cushion in cash. The rest in tax advantaged accounts. I already know retirement will be tight. I just know I can't go physically another 8 years working in my profession.

The bonds have already been cashed and are sitting in my checking account.

Can you get a j-o-b at a part time place? My plan is to find a part time office job working as admin staff in a house of worship or something. That's not related to either of my professions.

I believe I will probably have to get a part time job if I am physically able. 

[haapai]

The quality of the advice that you receive might be much better if you told us exactly how old you are.  It's not at all safe for us to assume that you are 61 and plan on retiring at 65 when Medicare kicks in.  There are an awful lot of folks that consider 62 (when you can claim early social security) to be retirement age.  Others aim to retire at 62 and a half, so that COBRA can cover them until Medicare kicks in.  You might also be aiming for 67 as your retirement age. 

We honestly have no idea how old you are, and this matters quite a bit when considering what kind of advice to give to you. 

[souldoubt]

Jan 12, 2023 15:34:01 GMT -5 jmlrn said:

Cashed in $56,000 of series EE bonds. I put $7,500 in my ROTH. Not sure the best strategy for the rest. I could do a 1 year fixed rate CD at 4.15% or a 3 month fixed rate at 3.25% and reevaluate the economic situation. However I don't think the economic situation will be trending up in that amount of time to make me confident enough to put this in my brokerage account. Would you buy a $10,000 I bond and CD the rest for a year? Put it in the brokerage and watch it lose value for the next year of so? I am a little more than 4 years out from retirement and not on track to meet my needs monthly with the amount I have saved.

If you're worried about locking your money up for any guaranteed amount of time in the short term I'd recommend the Capital One 360 Performance Savings Account.  I had a regular Capital One (previously ING) Savings Account for years but it paid 0.1% and didn't adjust with rate hikes.  Opened a 360 one in a matter of minutes (having the other one set up likely made it quicker but online search says you can open one in 5 minutes) and moved the money over.  Right now the 360 Performance Savings Account is paying APY of 3.3%.  Like you I'm trying to decide if I want to put anything into Ibonds this year.  They pay a higher rate but if I cash out at a year I'll lose 3 months of interest and depending on the April 2022 rate I may not walk away with much more while having less liquidity.   

[jmlrn]

Jan 12, 2023 17:20:22 GMT -5 haapai said:

The quality of the advice that you receive might be much better if you told us exactly how old you are.  It's not at all safe for us to assume that you are 61 and plan on retiring at 65 when Medicare kicks in.  There are an awful lot of folks that consider 62 (when you can claim early social security) to be retirement age.  Others aim to retire at 62 and a half, so that COBRA can cover them until Medicare kicks in.  You might also be aiming for 67 as your retirement age. 

We honestly have no idea how old you are, and this matters quite a bit when considering what kind of advice to give to you. 

I'll be 63 in a few months. Hoping to retire at 67 and take deceased spouse social security (which is significantly lower than mine) until I can claim mine at 70.

[jmlrn]

Jan 12, 2023 18:12:00 GMT -5 souldoubt said:

Jan 12, 2023 15:34:01 GMT -5 jmlrn said:

Cashed in $56,000 of series EE bonds. I put $7,500 in my ROTH. Not sure the best strategy for the rest. I could do a 1 year fixed rate CD at 4.15% or a 3 month fixed rate at 3.25% and reevaluate the economic situation. However I don't think the economic situation will be trending up in that amount of time to make me confident enough to put this in my brokerage account. Would you buy a $10,000 I bond and CD the rest for a year? Put it in the brokerage and watch it lose value for the next year of so? I am a little more than 4 years out from retirement and not on track to meet my needs monthly with the amount I have saved.

If you're worried about locking your money up for any guaranteed amount of time in the short term I'd recommend the Capital One 360 Performance Savings Account.  I had a regular Capital One (previously ING) Savings Account for years but it paid 0.1% and didn't adjust with rate hikes.  Opened a 360 one in a matter of minutes (having the other one set up likely made it quicker but online search says you can open one in 5 minutes) and moved the money over.  Right now the 360 Performance Savings Account is paying APY of 3.3%.  Like you I'm trying to decide if I want to put anything into Ibonds this year.  They pay a higher rate but if I cash out at a year I'll lose 3 months of interest and depending on the April 2022 rate I may not walk away with much more while having less liquidity.   

I have Citibank Accelerate Savings account which pays the same as your Capital One. I'm thinking why not put at least some of this EE money into A 1 year CD as the Accelerate interest rate can go down at any time.

[The Walk of the Penguin Mich]

Don’t forget to set money aside for taxes on $28k of this.  Unfortunately, it’ll be as interest income and taxed at your marginal tax rate, not LTCG.  

[TheOtherMe]

Just because the interest is 2023 income, you need to plan for the tax hit next year.  Don't spend that amount.

[minnesotapaintlady]

Jan 12, 2023 22:51:55 GMT -5 TheOtherMe said:

Just because the interest is 2023 income, you need to plan for the tax hit next year.  Don't spend that amount.

How much interest is it and did you have them withhold for taxes on the payout?  If they had all matured it could be a significant tax hit.  If they hadn't, maybe not so bad.

[souldoubt]

Jan 12, 2023 19:54:50 GMT -5 jmlrn said:

Jan 12, 2023 18:12:00 GMT -5 souldoubt said:

If you're worried about locking your money up for any guaranteed amount of time in the short term I'd recommend the Capital One 360 Performance Savings Account.  I had a regular Capital One (previously ING) Savings Account for years but it paid 0.1% and didn't adjust with rate hikes.  Opened a 360 one in a matter of minutes (having the other one set up likely made it quicker but online search says you can open one in 5 minutes) and moved the money over.  Right now the 360 Performance Savings Account is paying APY of 3.3%.  Like you I'm trying to decide if I want to put anything into Ibonds this year.  They pay a higher rate but if I cash out at a year I'll lose 3 months of interest and depending on the April 2022 rate I may not walk away with much more while having less liquidity.   

I have Citibank Accelerate Savings account which pays the same as your Capital One. I'm thinking why not put at least some of this EE money into A 1 year CD as the Accelerate interest rate can go down at any time.

Do you really think the rate will go down in the next 12 months?  The fed by all accounts isn't done raising rates rather all the talk centers around how high they'll go and in what increments.  When I opened the 360 account it was paying an APY of 3%.  Fed raised rates 50bps and the APY went up to 3.3%.  If liquidity isn't an issue then a CD or Ibond paying more is the way to go but if someone wants liquidity then a savings account is the better option. 

[jmlrn]

Somehow this got a little off the question IMO. For background: My husband took care of the allocations in our 401ks over the years. Had everything in low risk bond funds & cds making less than 3%. This is a big  part of the reason why I'm behind (as a widow) in having as much retirement savings as I'd like. That said I guess the question is should I put the money in a one year CD then reevaluate if I want to roll it over or partial amount in a CD and the rest in an existing brokerage (VOO & VTI) that will lose value now but potential growth later. I do not need liquidity.

[Rukh O'Rorke]

Jan 14, 2023 15:32:36 GMT -5 jmlrn said:

Somehow this got a little off the question IMO. For background: My husband took care of the allocations in our 401ks over the years. Had everything in low risk bond funds & cds making less than 3%. This is a big  part of the reason why I'm behind (as a widow) in having as much retirement savings as I'd like. That said I guess the question is should I put the money in a one year CD then reevaluate if I want to roll it over or partial amount in a CD and the rest in an existing brokerage (VOO & VTI) that will lose value now but potential growth later. I do not need liquidity.

are you currently maxing your 401k? Not sure if you mentioned that. If not, I would go that route, and could help with any tax bite due to cashing these in, and put the 401k money into stocks. Use the EE proceeds to supplement living expenses if need be.


If not needed, or whatever is left over, put it into stocks VOO or VTI is fine I think. You already have a 2 year cash cushion, so put this money to work.


Although the market may go down or up this year, we are already into year 2 of this pullback, and with 4-5 years till you retire the odds are in your favor that this money will grow rather than shrink by then. The conventional wisdom is not to invest money you need within 10 years. So you have 4-5 years till retirement, plus 2 years of cash. So you have 6-7 of those years. 

How much will your husband's ss provide you at retirement? what percent of your expenses? So if it provides 50% of your expenses, the 2 years cash would last 4 years.

When you switch to your retirement at 70, how much of your porjected expenses will that cover?

[jmlrn]

Jan 14, 2023 16:05:04 GMT -5 Rukh O'Rorke said:

Jan 14, 2023 15:32:36 GMT -5 jmlrn said:

Somehow this got a little off the question IMO. For background: My husband took care of the allocations in our 401ks over the years. Had everything in low risk bond funds & cds making less than 3%. This is a big  part of the reason why I'm behind (as a widow) in having as much retirement savings as I'd like. That said I guess the question is should I put the money in a one year CD then reevaluate if I want to roll it over or partial amount in a CD and the rest in an existing brokerage (VOO & VTI) that will lose value now but potential growth later. I do not need liquidity.

are you currently maxing your 401k? Not sure if you mentioned that. If not, I would go that route, and could help with any tax bite due to cashing these in, and put the 401k money into stocks. Use the EE proceeds to supplement living expenses if need be. Not maxing out the 401k which is in a Target Date fund but putting in 15%.


If not needed, or whatever is left over, put it into stocks VOO or VTI is fine I think. You already have a 2 year cash cushion, so put this money to work. The two year cash cushion includes the EE bond money otherwise its almost a year and a half cushion.


Although the market may go down or up this year, we are already into year 2 of this pullback, and with 4-5 years till you retire the odds are in your favor that this money will grow rather than shrink by then. The conventional wisdom is not to invest money you need within 10 years. So you have 4-5 years till retirement, plus 2 years of cash. So you have 6-7 of those years. I have Vanguard PAS so of course they are saying bring the money to us!

How much will your husband's ss provide you at retirement? what percent of your expenses? So if it provides 50% of your expenses, the 2 years cash would last 4 years. Husband's ss will be 30% of my expenses so I will have to continue to work in some capacity for those years

When you switch to your retirement at 70, how much of your porjected expenses will that cover? My SS will provide half of my expenses



Everything in the house seems to need repair lately. Appliances are all 16 years old. So thinking maybe keep up to $15-20,000 of this in cash, not tied up.

[phil5185]

Your plan to use low-risk tools for short periods could be costly, ie, it will be a mathematical certainty that you will get only 3 or 4% return for a year. And then you'll need to roll into whatever is available, either better or worse. A higher probability of success would be to use a long-term product and let it grow for 20 years or more undisturbed. (eg, $50k at 11% for 20 years is $403,000 - in 30 yrs it will $1,145,000).  

I maxed my 401k from the time it became available (1981 or 2) - when I retired about 20 years later it was close to a million. But one thing surprised me - retirement doesn't stop the growth trajectory, it keeps right on growing.   


 

[souldoubt]

Jan 14, 2023 15:32:36 GMT -5 jmlrn said:

Somehow this got a little off the question IMO. For background: My husband took care of the allocations in our 401ks over the years. Had everything in low risk bond funds & cds making less than 3%. This is a big  part of the reason why I'm behind (as a widow) in having as much retirement savings as I'd like. That said I guess the question is should I put the money in a one year CD then reevaluate if I want to roll it over or partial amount in a CD and the rest in an existing brokerage (VOO & VTI) that will lose value now but potential growth later. I do not need liquidity.

What would change in a year vs. now that would make you want to put the money into a brokerage account?  This is really a rhetorical question because you're trying to play catch up and no one can effectively time the market consistently.  Trying to retire in 4 years means you hopefully have another 20+ years of living.  A CD isn't going to beat inflation and assuming the fed continues to raise rates at their next meeting at the end of this month a CD now will pay less than CD issued after their next meeting.  Perhaps the market is negative or flat the next year or multiple years but if you're playing the long game which you are I'd invest the money based on your preferred asset allocation.  Sounds like your long term plan for the money is VOO or VTI so I'd put the money there while you can dollar cost average with monthly contributions if you're worried about returns over the next year.

[TheOtherMe]

Jan 14, 2023 17:50:50 GMT -5 jmlrn said:

Jan 14, 2023 16:05:04 GMT -5 Rukh O'Rorke said:

If not needed, or whatever is left over, put it into stocks VOO or VTI is fine I think. You already have a 2 year cash cushion, so put this money to work. The two year cash cushion includes the EE bond money otherwise its almost a year and a half cushion.

If you did not have taxes withheld on the EE bonds, please remember to set aside enough to pay taxes on the interest in 2023.  

[giramomma]

Jan 14, 2023 16:05:04 GMT -5 Rukh O'Rorke said:

Jan 14, 2023 15:32:36 GMT -5 jmlrn said:

are you currently maxing your 401k? Not sure if you mentioned that. If not, I would go that route, and could help with any tax bite due to cashing these in, and put the 401k money into stocks. Use the EE proceeds to supplement living expenses if need be.

This is what I was thinking.

Also, is your target date retirement fund for your actual retirement date or later? If it's for your retirement date, it might be too conservative for your needs.

Is there anything you can do to reduce your costs?

Is it appropriate for you to stay in your house? My parents should have moved out of their home. My mom is 77 and shouldn't be in a house at all, even if it is the cheapest option when considering the monthly budget.

[TheOtherMe]

I know there are things I could do to reduce my costs aside from the house payment and utilities.  Some I wouldn't like, but it could be done.

[phil5185]

What did you invest your 401k in?

[jmlrn]

Jan 15, 2023 18:17:40 GMT -5 phil5185 said:

What did you invest your 401k in?

For most of the time it apparently was in "stable value fund". It has been in a 2025 target date fund the past few years.

[jmlrn]

Jan 15, 2023 15:50:50 GMT -5 TheOtherMe said:

I know there are things I could do to reduce my costs aside from the house payment and utilities.  Some I wouldn't like, but it could be done.

Oh I would have plenty of money for retirement if I never got together with friends for dinner or took any vacations but I see that as existing not living. When my husband passed I cut as many expenses as I could (cut cable, lower cost internet, lowest cost cell plan, shopped for lower cost home & car insurance, sold everything I could) and have owned my home for quite some time. It is an 80 yr old home, I need a new deck the boards are rotting (but that's not happening) different things needing repair keep popping up.

[giramomma]

Have you considered a reverse mortgage?

[jmlrn]

Jan 17, 2023 14:00:14 GMT -5 giramomma said:

Have you considered a reverse mortgage?

No, that would be a last resort. My neighbor did that so she could afford to stay in her home and have help come in to keep her out of a nursing home.