From 24/7 Wall St. · Chris Lange · · 1m 50s
I Bonds vs. Dividend Stocks for Retirees
Retirees weigh 4.26% I Bonds against 5.56% Realty Income dividends amid tax and reset rules.
In brief
Retirees weigh 4.26% I Bonds against 5.56% Realty Income dividends amid tax and reset rules. Retirees should consider I Bonds for high-tax states needing income after 12 months or Realty Income for monthly cash with tenant risks. Originally reported by 24/7 Wall St..
I Bonds: How They Work
I bonds earn interest monthly and compound semiannually but require waiting to cash them after 12 months.
I Bonds: Rate Structure
I bonds have a 0.9% fixed rate and a 1.67% semiannual inflation rate, totaling 4.26% for six months.
I Bonds: Reset Rules
Treasury resets the inflation rate on November 1, about two weeks from now, and sets a floor at zero if deflation occurs.
Realty Income: Dividend Safety
Realty Income has a trailing dividend yield of 5.56% with 98.8% portfolio occupancy and 102.7% rent recapture rate.
Realty Income: Risk Factors
65.7% of rent comes from tenants without investment-grade ratings, and retail makes up 78.3% of the rent roll.
Tax Differences
I bonds are exempt from state and local taxes, while REIT dividends are taxed as ordinary income with a 20% deduction.
Who Each Option Suits
I bonds suit retirees in high-tax states who need income after 12 months; Realty Income fits those needing monthly cash with tenant risks.
Reinvestment Risk
I bond rates reset every six months, so a retiree counting on 4.26% could see a lower rate at the next reset.
Dividend Growth
Realty Income has paid 673 consecutive monthly dividends and raised payouts for 31+ years, with recent growth at 0.74%.
Tax Impact on REITs
REIT dividends qualify for a 20% deduction under 26 U.S.C. § 199A(b)(1)(B), softening the tax bite.
I Bonds: Lockup and Penalties
Cash in I bonds before 5 years incurs a three-month interest penalty, and they mature after 30 years.
The headline
Retirees should consider I Bonds for high-tax states needing income after 12 months or Realty Income for monthly cash with tenant risks.
