Larry, A practical question re: (A) Cash Pension (fixed payment/mo) vs. (B) Annuity via US Treasuries (20-30 yrs). Option (A): My Cash Pension would pay out monthly ($300k total) like annuity @ 3.5% (myself + spouse after my death). My option (B) would be to transfer to IRA as lump sum, and wait till 20 or 30-yr US Treasuries reach > 4.5% yield (Eo2022 ?) and buy them. I am looking at Deu. Bank's projections for Q4'22 (J. Reid) and they project US FED Funds rate = 3.625%. Based on that, can we expect long term US Treasuries (20/30 yrs) to be > 4.5% ? . Would option B more viable - and if yes, would MaxiFi be able to model that (or any other annuity calculator vs. US Treasuries?). Would appreciate your comment how to go about it. PW
Pete, I don't like any nominal long-term investment. You can get killed by inflation regardless of its market-projected value. Better to invest in TIPS and I-bonds. best, Larry
Government providing inflation indexing or other inflation-adjusted assets/returns for seniors sounds good, but who trust the government to use true inflation rates when they are so heavily in debt? They'll just fudge the rates as they already have.
The Bureau of Labor Statistics has a lot of career staff. They do change their procedures from time to time, but it's not politically motivated. The Boskin Commission was the last big change. All the top economic experts on the topic were members.There were changes made to the CPI, but they were all appropriate. So, Robert, I wouldn't worry about this issue, per se. best, Larry
I am a retired economist and I agree with Larry on this. If the White House tried to pressure the BLS to "fudge" the rates, I would be pretty sure that the head of the BLS would stonewall the White House or quit in protest.
Inflation indexed savings bonds are currently paying 9.6%. Each person is limited to $10,000 per year but there are ways around that. I believe Everyone should buy those for at least the next 2 or 3 years even if you have to cash them in before 5 years which entails a three month penalty. You do have to hold them for are meant 1 year.
Buying I-Bonds only when inflation is high is naive. I-Bonds are just about the best bond you can buy, no matter what inflation is today. Investors should be most concerned with the fixed rate on I-Bonds not the variable (inflation-based) rate. Prior to 2001, fixed rates were north of 3%. Those bonds are paying over 13% today, and I'm happy I own some. Remember, it's not about chasing short-term nominal returns, it's about securing long-term real returns. If possible, buy the max amount of I-Bonds every year, especially during your working years.
I agree. If possible make it your only bonds in your investment portfolio. When I was an investment advisor I had all of my clients but them in those years.
Would you , pls , explain how the pre-2001 I-bonds pay out > 13% today? I posed a question for LK about investing a lump sum of ~ $300k (IRA) as either life annuity @ 3.5% (fixed) or , maybe, in US Treasuries at the end of 2022 (assuming they will be > 4.5% for 20/30 USTs). Do you see a better alternative, like I-bonds? If yes, what Yields - long term- can one count on?
Check out the historical rates on I-Bonds. You'll see that bonds prior to 2000/2001 have fixed rates over 3%. With the variable (i.e., inflation-based) rates currently at 9%+, the effective interest rate on these older bonds are currently over 13%.
Remember, you can only buy $10K of I-Bonds per person per year. This means you can't take a lumpsum and buy say $100K+ of I-Bonds from your cash savings. And, you can't buy I-Bonds that were issued historically, say with a higher fixed rate. In other words, just buy as much as you can each year and hold them until you need the cash for spending in retirement.
Could Congress protect seniors from having to take RMDs by freezing that requirement for 2022? I don't want to be forced to take out money from a drastically reduced bucket value.
You packed a lot into a short theme. I read each of your paragraphs and waited as the suspense built til the end. Aha, it has all been about policies, and as the major tax cuts made life easier at the top, more and more policies were created which were unfavorable to retirees. Of course back then it escaped our scrutiny because we weren't affected. And here we are, taxing social security. The same social security that is already third from the bottom of the worlds safety nets for the elderly. Forced to create additional income to make ends meet we are forced to pay tax on 85% of SSA payments, and as a group owe $100 billion in student loans. For those of us who managed our own portfolios and held instead of panicking we will continue to be ahead of inflation. And thinking outside the "cart" when we spend offsets the price fluxuations. Back to policies. As retirees we have enormous wealth invested and we need to control the policy dialog to make sure hang on to what we worked a lifetime to collect. An end to SSA taxes and student loan debt would be a good start. As to the tax part, it isn't like it goes back to the SS Fund. As for the student debt, it isn't as if $3 Billion in interest to going to break the bank.
This is all about money supply, so.... How is inflation affected by the value of the dollar, how are interest hikes making the dollar stronger, does Wall Street stock dumping affect the dollar supply, as the rate hikes cause banks to raise rates to consumers the growth of money to slow, and how is the Ruble coming out ahead inspite of the sanctions. The inflation we face as we spend is the one end and the dollar value is at the other end.
Don't understand your statement about Inflation = 3.7% ? (are you time averaging over 24 mos?). Could you elaborate how you arrive at this number? Yes, CPI is YoY index https://www.bls.gov/cpi/ , and is 8.3% now - but we have a lot of evidence that this inflation is with us for extended period of time. All items = 8.3% , again (Food = 9.4%, energy = 30.3%, shelter is way underestimated, ...). So when one plans for retirement ( MaxiFi S/W) , how the next 1-2-3 yrs should be modeled? 8% will stay with us here, imo.
Inflation is primarily monetary effect per Friedman ( “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”) . The FED is not tightening (QT) yet https://fred.stlouisfed.org/series/WM2NS and does not sell any assets. Just interests rates hike (miniscule) will not do anything to lower inflation. In general, could you elaborate more on the future Inflation in realistic terms? 2022-2024: what real inflation can retirees expect? 5-6-7-8% annually? 3.7% sounds and looks like fairy tale.
Pete, Traveling. Will respond tonight. The 3.7 is 12 months if compounding.03 monthly inflation. Agree that Fed’s move is cosmetic. It’s one 40th of what Volker did in the same spot. Best, Larry
Larry, A practical question re: (A) Cash Pension (fixed payment/mo) vs. (B) Annuity via US Treasuries (20-30 yrs). Option (A): My Cash Pension would pay out monthly ($300k total) like annuity @ 3.5% (myself + spouse after my death). My option (B) would be to transfer to IRA as lump sum, and wait till 20 or 30-yr US Treasuries reach > 4.5% yield (Eo2022 ?) and buy them. I am looking at Deu. Bank's projections for Q4'22 (J. Reid) and they project US FED Funds rate = 3.625%. Based on that, can we expect long term US Treasuries (20/30 yrs) to be > 4.5% ? . Would option B more viable - and if yes, would MaxiFi be able to model that (or any other annuity calculator vs. US Treasuries?). Would appreciate your comment how to go about it. PW
Pete, I don't like any nominal long-term investment. You can get killed by inflation regardless of its market-projected value. Better to invest in TIPS and I-bonds. best, Larry
Thank you.
Government providing inflation indexing or other inflation-adjusted assets/returns for seniors sounds good, but who trust the government to use true inflation rates when they are so heavily in debt? They'll just fudge the rates as they already have.
The Bureau of Labor Statistics has a lot of career staff. They do change their procedures from time to time, but it's not politically motivated. The Boskin Commission was the last big change. All the top economic experts on the topic were members.There were changes made to the CPI, but they were all appropriate. So, Robert, I wouldn't worry about this issue, per se. best, Larry
I am a retired economist and I agree with Larry on this. If the White House tried to pressure the BLS to "fudge" the rates, I would be pretty sure that the head of the BLS would stonewall the White House or quit in protest.
Inflation indexed savings bonds are currently paying 9.6%. Each person is limited to $10,000 per year but there are ways around that. I believe Everyone should buy those for at least the next 2 or 3 years even if you have to cash them in before 5 years which entails a three month penalty. You do have to hold them for are meant 1 year.
Fully agree, Rick. Am buying ours today! best, Larry
Buying I-Bonds only when inflation is high is naive. I-Bonds are just about the best bond you can buy, no matter what inflation is today. Investors should be most concerned with the fixed rate on I-Bonds not the variable (inflation-based) rate. Prior to 2001, fixed rates were north of 3%. Those bonds are paying over 13% today, and I'm happy I own some. Remember, it's not about chasing short-term nominal returns, it's about securing long-term real returns. If possible, buy the max amount of I-Bonds every year, especially during your working years.
I agree. If possible make it your only bonds in your investment portfolio. When I was an investment advisor I had all of my clients but them in those years.
Would you , pls , explain how the pre-2001 I-bonds pay out > 13% today? I posed a question for LK about investing a lump sum of ~ $300k (IRA) as either life annuity @ 3.5% (fixed) or , maybe, in US Treasuries at the end of 2022 (assuming they will be > 4.5% for 20/30 USTs). Do you see a better alternative, like I-bonds? If yes, what Yields - long term- can one count on?
Check out the historical rates on I-Bonds. You'll see that bonds prior to 2000/2001 have fixed rates over 3%. With the variable (i.e., inflation-based) rates currently at 9%+, the effective interest rate on these older bonds are currently over 13%.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf
Remember, you can only buy $10K of I-Bonds per person per year. This means you can't take a lumpsum and buy say $100K+ of I-Bonds from your cash savings. And, you can't buy I-Bonds that were issued historically, say with a higher fixed rate. In other words, just buy as much as you can each year and hold them until you need the cash for spending in retirement.
Rick, how can you get around the $10,000 limit per person? ( I know about the extra $5,000 if you have a tax refund, but that is not significant)
I agree as well. Further, you can purchase up to 5K in I-Bonds with your tax return.
Yes. So you could increase your withholding or make estimated payments to make sure you have a refund of at least 5k.
Could Congress protect seniors from having to take RMDs by freezing that requirement for 2022? I don't want to be forced to take out money from a drastically reduced bucket value.
You packed a lot into a short theme. I read each of your paragraphs and waited as the suspense built til the end. Aha, it has all been about policies, and as the major tax cuts made life easier at the top, more and more policies were created which were unfavorable to retirees. Of course back then it escaped our scrutiny because we weren't affected. And here we are, taxing social security. The same social security that is already third from the bottom of the worlds safety nets for the elderly. Forced to create additional income to make ends meet we are forced to pay tax on 85% of SSA payments, and as a group owe $100 billion in student loans. For those of us who managed our own portfolios and held instead of panicking we will continue to be ahead of inflation. And thinking outside the "cart" when we spend offsets the price fluxuations. Back to policies. As retirees we have enormous wealth invested and we need to control the policy dialog to make sure hang on to what we worked a lifetime to collect. An end to SSA taxes and student loan debt would be a good start. As to the tax part, it isn't like it goes back to the SS Fund. As for the student debt, it isn't as if $3 Billion in interest to going to break the bank.
With you. In four days,, will post a piece now on Forbes on student debt.
This is all about money supply, so.... How is inflation affected by the value of the dollar, how are interest hikes making the dollar stronger, does Wall Street stock dumping affect the dollar supply, as the rate hikes cause banks to raise rates to consumers the growth of money to slow, and how is the Ruble coming out ahead inspite of the sanctions. The inflation we face as we spend is the one end and the dollar value is at the other end.
Don't understand your statement about Inflation = 3.7% ? (are you time averaging over 24 mos?). Could you elaborate how you arrive at this number? Yes, CPI is YoY index https://www.bls.gov/cpi/ , and is 8.3% now - but we have a lot of evidence that this inflation is with us for extended period of time. All items = 8.3% , again (Food = 9.4%, energy = 30.3%, shelter is way underestimated, ...). So when one plans for retirement ( MaxiFi S/W) , how the next 1-2-3 yrs should be modeled? 8% will stay with us here, imo.
Inflation is primarily monetary effect per Friedman ( “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”) . The FED is not tightening (QT) yet https://fred.stlouisfed.org/series/WM2NS and does not sell any assets. Just interests rates hike (miniscule) will not do anything to lower inflation. In general, could you elaborate more on the future Inflation in realistic terms? 2022-2024: what real inflation can retirees expect? 5-6-7-8% annually? 3.7% sounds and looks like fairy tale.
Pete, Traveling. Will respond tonight. The 3.7 is 12 months if compounding.03 monthly inflation. Agree that Fed’s move is cosmetic. It’s one 40th of what Volker did in the same spot. Best, Larry
Maybe some of the confusion also arises from your 3rd sentence? Didn't you mean March instead of May?
Will fix as needed. thanks. Larry