Guaranteed 4.625% Ain’t Bad

April 17th, 2008  |  Published in Retirement  |  2 Comments

I’ve considered investing more of my retirement money into Treasury Notes but could never get over the seemingly weak rates of return. However, one article I found recently talked about someone who uses treasury notes exclusively for retirement savings, averaging around 4.625%, and then living off the interest of those (state and local tax free!).

Sometimes we read reports about stocks yielding over 10% a year and we start seeing the dollar signs, but when we get older, it’s the conservative and safe play that we really want. I think having grown up in a culture of more, we get it in our heads that we’re supposed to always try to get as much as we can, even if it puts a few more gray hairs on our head. When you get older, you stop needing to get more and instead need to get enough.

There are two types of savings bonds, EE and I bonds, backed by the “full faith and credit of the United States government,” which means the only way they go under is if the US Government goes under (or defaults, which would be just as bad).

EE bonds earn a market-based rate, indexed to the average yields of 5-year Treasury securities. The I bond is inflation-indexed. Its earnings formula has two parts: a fixed rate of return that remains the same for the life of the bond and a variable rate tied to inflation as measured by the Consumer Price Index for Urban Consumers (CPI-U). The Treasury announces new rates each May and November.

If you’re getting 4.625% and hitting the golf course each day, I’m sure you’ll be just as happy, if not happier, than getting 10% and not hitting the links. Sometimes we just need enough.