To enjoy your retirement, it is important to plan by building a strong financial reserve to fund your retirement. With a little fixed income, it can be hard to balance between saving for retirement and meeting monthly financial needs. Fill the financial gap and have a comfortable, secure—and fun—retirement; many retirees are turning to fixed-income investments.
Fixed income investments are increasingly becoming the solution for retirees seeking to grow their wealth and have consistent returns without digging into their assets. However, there has been little attention to fixed-income investment due to many turning to stock markets that promise higher returns. To reduce the level of risk, increase income, and beat inflation, many investors diversify their portfolios by investing in a mix of investment products.
Fixed income ensures that retirees have a continuous stream of income and gives a consistent budget to allow them stay within their budget and still have extra money for discretionary spending. It is common for retirees to invest in more than one fixed-income fund to spread the risks and maintain ideal cash flow. Therefore, you must conduct prior research and due diligence before deciding where to invest their money.
Available Fixed Income Funds
Depending on retiree’s financial plans, there are several fixed-income investment opportunities to select from. While some prefer being in charge of their own investment portfolios, others use ETFs and managed funds. It is also advisable to use professional financial advisors to get insights on the most secure and high-yield investment products. Below are a few types of fixed-income investment opportunities.
- Treasury Bonds. Also referred to as T-Bonds, the government issues treasury bonds. It is a government’s internal borrowing strategy and always matures after more than 10-years. Treasury bonds earn periodical interest against the principal. It is safer to invest in treasury bonds as they are backed by the government’s ability to tax.
- Government and agency bonds. An agency bond is issued by a federal government department or a government-sponsored enterprise. Like Treasury bonds, agency bonds are regarded safer to invest in thanks to their high liquidity and low risk. However, as opposed to U.S. Treasury and municipal bonds, some agency bonds are not fully guaranteed and, hence, present some risks.
- Municipal bonds. This is issued by a municipality, state, or county to raise money for capital expenses. This includes the construction of infrastructures like schools, roads, and bridges. These bonds come in the form of loans that the municipality borrows from investors. Municipal bonds are especially common among individuals in high-income tax brackets because they are exempted from most local and state taxes.
- Corporate Bond. Companies sell corporate bonds to raise capital from investors. In return, the investor shares in the company’s profits paid out in the form of interest payments, upon maturity of the corporate bond, interest payments to the investor stop, and the investor withdrawals the principal amount.
- Mortgage-backed securities. These are home loans issued by a bank on open market. The objective is to increase a higher fixed income.
- Certificates of deposit. Here customer agrees to leave all his/her deposits in the bank for a given period in exchange for an interest rate premium. A certificate of deposit generally offers low returns but is very safe.
Several advantages come with fixed-income investments for retirees. Firstly, it assures a consistent stream of income, which allows them to plan the future conveniently. Secondly, many of these investment products are exempted from taxation, which frees more income and reduces future taxation uncertainties for the retiree. Thirdly, fixed-income investment products are safe or have low levels of risk.