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How to Use Municipal Bonds in Retirement Planning

Monday, Dec 07, 2015

Creating Tax-Free Income with Municipal Bonds

You may have planned for Social Security income for retirement, but you don’t have to count on that as your only income. With tax-free municipal bonds, you can create tax-free income to upgrade your retirement lifestyle. Examine the benefits of creating income with tax municipal bonds. This could become a vital part of your retirement income strategy.

Municipal Bonds Tax Exemption

You don’t have to pay local tax on municipal bond interest income. You also don’t pay federal tax on the income from municipal bonds. Many states also do not include municipal bond interest from state income tax. In short, you could create a tax-free income stream for your retirement by creating a municipal bond portfolio.

Capital Preservation with Municipal Bonds

When you buy a municipal bond, the issuer promises to give you back your money in full when the bond reaches a certain date, called maturity. While there is no guarantee that a municipality will always honor its bonds, you can greatly reduce your risk by looking at the credit ratings published by Moody’s, Standard and Poor’s, and Fitch. These agencies rate municipal bonds based on the credit-worthiness of the issuer. As long as the issuing entity is credit-worthy, your money will be likely to get paid back to you. This means you preserve your original investment while living off the interest. When the bond matures or you sell it, you will have your money to invest again and create more income. Since you only withdraw the interest payments, you never live off the principle, so your money doesn’t dwindle during your retirement years.

Municipal Bonds Stability

You can plan ahead for expenditures when you invest in municipal bonds, because you know what your interest payments will be. With this kind of stability in your income, you are less likely to overspend. This part of your income won’t go down as long as you hold the bond. If you use the interest payments for a mortgage payment or rent, you know your retirement housing is secure. On the other hand, if you count on municipal bond income for supplemental income, you can plan vacations and special purchases based on when you know the interest payments are coming.

Municipal Bonds Income with Growth

You can put municipal bonds in a portfolio that includes stocks. The stocks offer you the opportunity to grow the value of your investments, while your municipal bonds provide you with steady income. This combination of reliable income and potential growth can improve your financial situation throughout retirement.

Are you ready to learn more about creating a tax-free income stream? For help in retirement planning with tax-free municipal bonds, speak with a GMS bond specialist by contacting us online or by calling 877-567-9811.