Are municipal bonds good for retirees? (2024)

Are municipal bonds good for retirees?

Key Points. Retirees are often advised to shirt over to safer investments, like bonds. Municipal bonds offer the benefit of interest that's exempt from federal taxes. In some cases, state and local taxes won't apply, either.

Does municipal bond income affect Social Security?

While municipal bond interest is tax-free on your federal return, the amount you receive is a factor in whether you will owe tax on your Social Security benefit.

What is the best investment for a retired person?

Investing experts point to these low-risk but still profitable portfolio plays:
  • Bonds.
  • Dividend stocks.
  • Utility stocks.
  • Fixed annuities.
  • Bank certificates of deposit.
  • High-yield savings accounts.
  • Balanced portfolio.
Jan 24, 2024

At what income level do municipal bonds make sense?

If you sit in the 35% income tax bracket and live in a state with relatively high income tax rates, then investing in municipal bonds (munis, for short) will likely be a better option than taxable bonds. Alternatively, if your income is in the 12% tax bracket, then you may want to steer clear of municipal bonds.

Why am I losing money on municipal bonds?

Municipal bonds, like all bonds, pose interest rate risk. The longer the term of the bond, the greater the risk. If interest rates rise during the term of your bond, you're losing out on a better rate. This will also cause the bond you are holding to decline in value.

Should retirees invest in bonds?

Bond funds are well-suited for retirement investors seeking capital preservation because they tend to be much less volatile than stocks.

Why do retirees invest in municipal bonds for income in retirement?

It's a good idea to shift over to bonds to some degree in retirement because they offer the benefit of predictable interest income. They also tend to be a lot less volatile than stocks. And you need investments that are generally more stable at a time when you're actually looking at selling off assets for income.

Does municipal bond income count towards Medicare premiums?

Income to determine monthly Medicare premiums may include municipal bond interest. To determine your Medicare premiums, the Social Security Administration generally uses your most recent federal tax return.

Is now a good time to invest in municipal bonds?

Still, some leading investment managers and analysts suggest it's time for investors to come back home to municipal bonds. "After two tumultuous years, we expect a municipal market recovery in 2024," says Robert DiMella, executive managing director, co-head of MacKay Municipal Managers.

What is the $1000 a month rule for retirement?

Understanding the $1,000-a-Month Rule: The $1,000-a-month rule is a simplified formula designed to help individuals calculate the amount they need to save for retirement. According to this rule, one should aim to save $240,000 for every $1,000 of monthly income they anticipate requiring during retirement.

Where is the safest place to put your retirement money?

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

What is the best investment for a 70 year old?

Ideally, you'll choose a mix of stocks, bonds, and cash investments that will work together to generate a steady stream of retirement income and future growth—all while helping to preserve your money.

Are municipal bonds a good investment in 2024?

Municipal bond yields started 2024 at their highest level since 2011. In this environment, investors may enjoy attractive total returns from income alone, a dynamic absent for almost 10 years. Municipals do not need a meaningful rate rally or dramatic spread compression to offer outsized, equity-like returns.

Do municipal bonds pay monthly income?

Generally fixed rate municipal bonds pay interest on a semiannual basis such as on June 30 and December 31 of each year. However, municipal bonds can have different payment periods and dates, such as an annual payment.

Who should invest in muni bonds?

Municipal bonds generally carry less risk than stocks and are tax-exempt, which for higher tax-bracket investors effectively increases the return rate. It's crucial to highlight though, that they may not be the best choice for everyone and should be considered in light of personal financial circ*mstances.

What happens to municipal bonds during a recession?

The main takeaway is: municipal bond downgrades are a common occurrence during recessionary times. Defaults attract a lot of attention, but they tend to be more the result of idiosyncratic circ*mstances and/or events.

Why are municipal bonds bad?

Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage.

What happens to municipal bonds when interest rates drop?

In other words, as the price of a bond goes down, the yield goes up and vice versa. Thus, when interest rates rise, a bond's price usually declines because an investor can earn a higher yield with another bond. Conversely, when interest rates fall, the bond's price usually rises.

What does Suze Orman say about bonds?

Suze Orman has a warning for investors relying too heavily on bonds. The personal finance expert believes the draw of high interest rates and an aversion to risk taking are preventing too many people from taking a “lifetime opportunity” in the stock market.

How much money should retirees keep in cash?

“Based on my experience, retirees should keep a modest amount of cash at home — enough to cover urgent or unexpected expenses over a few days,” said Crist. “This typically ranges between $300 to $1,000. The exact amount depends on their comfort level and specific circ*mstances.

What type of bonds should retirees own?

In order to get adequate diversification, it's a good idea to spread the bond portion of your portfolio among various Treasury bonds, high-grade corporate bonds and, if you're in a high tax bracket, municipal bonds (because interest on munis is tax-free).

How much money do you need to retire with $100000 a year income?

After analyzing many scenarios, we found that 75% is a good starting point to consider for your income replacement rate. This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement.

Are municipal bonds better than annuities?

Annuities have longer durations, but bonds can be reinvested as they mature, so both financial products can be used for the long-term. In general, bonds pay a higher yield than annuities—but not always.

Should retirees invest in stocks or bonds?

Retirement: 70s and 80s

You're likely retired by now—or will be very soon—so it's time to shift your focus from growth to income. Still, that doesn't mean you want to cash out all your stocks. Focus on stocks that provide dividend income and add to your bond holdings.

What is the current interest rate on municipal bonds?

Municipal Bonds
NameYield1 Day
BVMB2Y:IND Muni Bonds 2 Year Yield2.95%+5
BVMB5Y:IND Muni Bonds 5 Year Yield2.52%+4
BVMB10Y:IND Muni Bonds 10 Year Yield2.52%+3
BVMB30Y:IND Muni Bonds 30 Year Yield3.73%+4
1 more row


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