I Bonds Are Worth The Investment? ( 7.12% Interest Rate!) | The Retirement Income Show

Mark Elliot: Glad you’re with us today for The Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. Troy himself is actually a certified financial planner professional. You can always go to the website to find out more about Troy and the team, OakHarvestFG.com. I’m Mark Elliott. What if the Fed raises interest rates? How’s that going to affect me? Give me a call,. We’re here to help. It’s 800-822-6434.

Troy, we’ve talked about your YouTube channel. You can just search for Troy Sharpe and Oak Harvest on YouTube, over 200 videos there, and you’re always doing new videos and staying up with the times. I know before we ended the last segment, you were talking about I bonds, and we know that the Fed is talking about raising interest rates. Now they’ve backed off a little bit. Therefore a while, it was going to be, we’re probably going to raise them every of all seven of our meetings this year. They’ve backed off a little bit because of inflation, and they’re nervous about things, but we know when interest rates rise, bond values go down. Now you’re talking I bonds. Where are you going?

Troy Sharpe: We have a video coming out on YouTube here. I think it’s probably going to be released in like two weeks. I recorded it this past week, I believe, and we’ve been getting a lot of comments on the channel. It’s curious, so everyone thinks they’re an expert at, everything they’re not really an expert at. One of the comments I got recently was, “Troy, I’m going to–” This is underneath one of the YouTube videos that we have out there. It’s one of the financial planning, tax planning videos. I’m not sure which one, but he says, “Troy, why not just invest in I bonds. You can make 7.12%. I’m going to put all my money into them, and it’s going to double in 10 years, because at 7%, your money doubles every 10 years.”

It’s a really good example of, I don’t want to say ignorance, but just someone not understanding, hearing something, maybe someone told them and they heard it through the grapevine. Here is the truth. Yes, you can invest your money right now into what’s called an I bond and make 7.12%. It’s 3.56%, fully guaranteed from the government.

The catch is, I bonds have two components. One is a fixed rate component. The fixed rate currently for I bonds is 0%. The variable rate component is 3.56%. The variable rate component resets every six months, once in May and once in November. The variable rate component is based on inflation. With 7.9% inflation print that we recently got from, I believe, the February numbers, it’s likely that when the rate resets the variable component rate in May, then it’s still going to be pretty high. It’ll probably be higher than the 3.56 print that we got last November.

That’s the good news. Yes, you can buy I bonds, and you’re probably going to make somewhere around 7% to 8% on that money. It’s fully guaranteed, 100% safe, 100% protected, or guaranteed by the government, I should say. Here’s the downside. Here’s what you need to know.

First and foremost, the money, you can’t touch it for a year, and that’s not really a big deal. If you’re in good shape, you should have money set aside that you don’t need to touch for full 12 months. After 12 months, if you take your money out within the first five years, or between months 13, and, let’s say, 59, then you lose three months of interest. Okay, that’s not really that big of a deal either. If you’re going to make 7% annually, and you lose 3% of interest or three months of interest, not a big deal. You’ve still done really well for something fully guaranteed by the government.

Here’s the big downside. Per person, you’re only allowed to invest $10,000. Yes, they do exist. You can’t buy them from us. It’s nothing we sell. It’s nothing you can go to your advisor and buy. You have to go to TreasuryDirect. Just Google Treasury Direct, and it’ll show up on the webpage there, and you’ll see, it’ll say I bonds. You open it up and you go through the process, and $10,000 per spouse.

Here in Texas, we don’t have state income tax, but we do record these videos on YouTube. If you’re watching on YouTube, the interest earned from I bonds is exempt from state and local taxes. Another bonus there if you’re in a high income tax state, and if you use the interest for qualified education expenses, it is federally exempt from income taxes. Again, it’s only 10,000 bucks per person you can put into these, but you do have some tax benefits there potentially. If you get a refund, you can use your $5,000, or up to $5,000 of your tax refund to buy paper I bonds.

Theoretically, you could have $10,000 husband, $10,000 wife, and $5,000 from your tax refund to buy paper bonds. The two $10,000 bonds, they are electronic bonds. You can buy them directly from the Treasury. Now, here’s the truth. Inflation is not going to stay at 7%. Every six months, the rate on your I bond is going to change. It’s not locked in for five years. By the way, these are technically 30-year bonds, but after the fifth year, they become 100% liquid.

The rate is going to change. It is a variable rate component. Every six months you’re going to get a new rate, and once inflation does come back down, which it will, we’re not going to stay at 7%, 8% inflation for 25 years. You’re going to have a lower rate but again, it’s a small amount of money for most of you and it’s better than cash. You just go to TreasuryDirect. Google it. I believe the exact address is treasurydirect.gov. Check it out. It’s something you can do with your cash, and it’s a lot better than sitting in the bank.

Mark: You have over 200 videos now on YouTube. Again, just search for Troy Sharpe Oak Harvest on YouTube, and you can watch any of those that you want to learn more about, obviously. It’s there for really an educational reason. You can learn about these different areas that Troy, Chris, and the team put together these videos for you.

That’s an interesting one. Obviously limited in what 10 grand a person, I guess, spouse, husband, wife, so they could put in 20, I suppose. What else is up that you want to get to today?

Troy: One of the cool videos we did recently on the YouTube channel, and this one should be released I believe this upcoming Thursday. We put several videos out there. I typically will record every week, and I’ll do one or two videos when we try to build up a bank in case I’m out of town, in a conference, on vacation, whatever is happening.

Chris Perras, our chief investment officer; Chris has two segments that he does. One is called News or Noise. The other is our weekly podcasts we’ve been putting out for several years. I think we have the past four years of these on our website. Really encourage you. If you’re investigating firms to work with, if you’re not happy with your current advisor, if you don’t have a retirement plan, check out what Chris is doing because we are a retirement planning firm.

Mark: Hey, you ought to touch on, because you said the subscription, talk about the huge fees for that.

Troy: [chuckles] Yes, there’s no cost to subscribe. It’s a YouTube channel. It’s completely free. All subscribing does is keep you connected to us. Our goal is to help you make more money, pay less tax, generate more income, help you get out of that mainstream box of retirement planning of 60/40 with a 4% withdrawal. I am so sick and tired of hearing this on television, in articles. That is simply not a retirement plan. My goal is to educate you, your family, so you can understand how every decision that you make in retirement is connected.

When you take Social Security, how much income you withdraw from your retirement account? Where you withdraw that income from? That impacts your account balances. That impacts your taxes. Are we doing Roth conversions? Are we not doing Roth conversions? If you retire before 65, your income and your tax situation affects your health care subsidy. If you’re over 65, your income and tax situation can affect your Medicare premiums, requirement on distributions.

If you’re not planning now, many of you are going to be in a bad situation at 72 when RMDs kick in, 75, 80 years old, because your RMDs are going to force so much out of that ballooned 401k or IRA that you’re going to have so much income. You’re going to create this domino effect of other taxation throughout your retirement. This is what we go through on the YouTube channel. My goal is to educate you to help you become a better investor, a better retirement planner, whether you work with us or not.

It’s a great opportunity for you to get to know us, and if you want help and you realize that, “Hey, this is over my head. This is way too much. The decisions I’m making are too consequential. I need professional help.” Well, that’s what we’re here for. Give us a call. We’d love to work with you but also, even if we don’t work with you, we want to educate you. We want you to be better off. This is our mission in life. This is why we own this company. It’s why we do what we do every single day.

Go to YouTube. Search Oak Harvest Financial Group. Give us a call, 1-800-822-6434, but go to YouTube, search Oak Harvest Financial.

Mark: Glad you’re with us today for The Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. Again, just search for Troy Sharpe and Oak Harvest on YouTube. You can always give him a call at 800-822-6434. We’re going to talk a little Social Security right after this. Stay with us. Back in one minute.

Voice-over: Oak Harvest Investment Services is a registered investment advisory firm. Troy Sharpe is an investment advisor representative and insurance professional. Investing involves risk, including the potential loss of principal.