Municipal bonds can be a great source of retirement income and this post will keep you from getting ripped off. The interest is high and tax free but the way municipal bonds are sold lacks regulation and disclosure and you're about to learn what your broker will never tell you.
Municipal bonds are not for everyone and are best suited to those who can get maximum benefit from the tax free savings. The maximum beneficiaries are those in the 25% or higher federal income tax bracket ( for 2010, single people with taxable income of $34,000 or more and , marrieds with taxable income of $68,000 and more). If your taxable income is less than these amounts municipal bonds investing MAY not be advantageous because you could make more by investing in taxable bonds and paying the tax. In other words, taxable bonds typically pay more interest so someone in a lower tax bracket will be better off getting the higher interest, paying the tax and still come out ahead.
BIG EXCEPTION: Because municipal bond yields DO NOT have a constant relationship with others types of retirement income options, one must analyze at the time of investment which type of bond would bring you put ahead. The next paragraph illustrates.
Getting 5% from a tax free bond in the 25% federal tax bracket is an effective yield of 6.66%. Where else can you get anything close to 6.66% rated AAA? Currently (9/16/10), municipal bind interest rates are out of whack and tax free bonds pay WAY MORE than they should relative to treasury bonds or high grade corporate bonds. That MAY be because the smart money expects the issuers of municipal bonds to default (i.e. go bankrupt) and not be able to pay off their bonds. Or, it may be due to very significant purchases by foreigners of US Treasury Securities which have pushed their yields down to uncharacteristically low levels.
You can buy bonds issued by your state or any state (or any municipality). While many suggest buying bonds just from your state because the interest will also be free from your state income tax, it is better to have diversification. I live in California and don't want my entire bond portfolio concentrated here given the State's chronic inability to balance its budget. So I buy tax free bonds issued by others states and I will pay state income tax on this (about 6% of the income I receive) but no federal tax.
Unlike stocks, the prices of tax free bonds don't get published in the newspaper. There are just too many issues to list in the paper and that's what makes municipal bind investing less than transparent. Add to this that there is no government requirement that forces your broker to show how much commission you pay to buy a bond. The broker simply adds their markup to the price so your transaction cost is hidden. However, you can avoid getting ripped off. The Municipal Sales Rule Making Board tracks prices paid for municipal bonds in recent purchases. By consulting their web site you can check the actual recent price paid by investors and dealers. That way, you'll know if your broker is giving you a fair price (1% to 2% commission is fair to pay). Or, you can use the prices that have transpired to give your broker a limit price. Just visit http://emma.msrb.org/ and enter the cusip number (the identifying number) of the bond you desire to research.
If you are buying $25,000 of an issue, it's not unreasonable for a full service broker to mark up the bond 2%. However, the markup will usually be 1% or maybe .5% from a discount broker. You can do a search for bonds trading on the market at http://www.rbcbondsearch.com and www.bondsonline.com. You need to know enough to set your criteria when searching for bonds you might want to own: term, type of bond, rating, etc. The web site will produce a list of bonds meeting your criteria and show you the cusip numbers so you can look up recent prices. To learn more about any issue, you take its cusip number (its identifying number) and look it up at the EMMA web site http://emma.msrb.org, which not only has prices but also the offering memorandum for the bond, describing all aspects of the issue and annul statements since issuance and recent trading/price history.
Now you have basic tools for becoming a sophisticated municipal bond buyer and not getting ripped off on price. In a separate post, I review the dangers of municipal bond funds.
You might also like:
At this state and time in the economy I do not think I would invest in anything.
We are in a state of change and right now the only thing remotely guaranteed tomorrow is cold hard cash.
In a few years after we get out of this phase of the economy I believe that real estate and stocks will be massive performers like they were in the 90's and early 2000's.
Its just to uncertain for me now. I'm holding tight and what money I do spend is to make me happy.
Thanks for all the great info on Municipal Bonds I like being informed.
Thank you for sharing such a nice information for us.i got an idea about municipal bonds.keep on posting....
I guess discount brokers will be ok for this type of investment, yes? Bonds are low risk anyway, so it's almost a guarantee that the money you put in municipal bonds will be worth every penny. On the other hand, since you have to have a high taxable income to buy such bonds, I'm sure many earning under that income bracket can well afford a full-service broker without a sweat.
This information about retirement income is very usefull, thank you.
Thanks for the good information. Although Municipal Bonds are Tax-Free, they still count towards your provisional income when it comes to the income tax you may have to pay on your Social Security. So you need to take that into consideration prior to purchasing them.
Municipal bonds has been an Issue that I have been having quite a hard time grasping it. Thank you very much for helping me out!
Wow, you make municipal bonds sound like a no-brainer. lol, I feel like I have no brain now since I don' t own any.
What's bad for the governor could be good for you: Some state municipal bonds are offering decent yields.
Municipal bonds are not for everyone and are best suited to those who can get maximum benefit from the tax free savings. For the others, bonds issued by your state or any state (or any municipality) are favorable.
Great information about saving taxes. I guess many people were not aware of it. You have highlighted very important aspect of saving income. In this changing scenario its very important to save some part of your money and this could be one nice option. Thanks for sharing this information.
Very interesting post
I am trying to know something more about municipal bonds
Interesting facts, although it sounds very complicated thing. I think we have to wait for your next review, the dangers of municipal bond funds before we take action. Thank you for your reviews.
from
lngg the writer of Wobenzym N
Great information on Municipal Bonds. I am planing on investing few more bucks down the road just need more time to research it a bit better.
Thanks,
Halid
I would have to disagree a bit... Discussing tax benefits etc of municipal bonds is kind of a waste of time when considering there are many more alternatives to building a steady, passive income either before or during retirement. Do yourself a favour and enrich yourself in the knowledge of investing elsewhere, also to leverage your money -- which you cannot do with bonds like this.
Great information about municipal bonds for retirement income purpose. Thanks for sharing nice information. Awesome post.
I’m always thinking about how much money I should have when I retire. What my life will look like later down the line. But for right now I’m trying to enjoy what I have to the fullest without putting a dent in my pocket. Especially now these days, almost everything costs an arm and one leg. I am contributing to my savings every month for any emergency, even for a retirement fund. But realistically I don’t think any amount of savings will ever be enough, it just depends on how you manage all your expenses or investments when the time comes.
Please feel free to check out my blog and leave comments for me at http://www.wealthvest.com/blog/
Thanks everyone and I hope to hear from you soon!
thank you for this short article, i did no know much about this subject. i always thought it is too early to think about retirement. But time is inevitable
If hard to say what is the best items to invest in at this point. Most people are uncertain and afraid to invest in any items given the state of the economy. A lot of people have opted instead for just having liquid assets at this point. Although a lot of us need to look into how to survive during our retirement years most of us are hesitant at this point to invest in anything even if it sounds good. The unfortunate problem is that most of us need to find options to help us produce income for retirement or we can end up in financial problems during our later years also.
This is my first introduction into municipal bonds! Thanks for the help!
ryan
Will Municipal bonds benefit discount brokers? I would also like to know which states here in the US are offering decent yields?
Retirement Income , a much needed source after retirement.
I'm not familiar with Municipal bonds at all. This made me curious and urged me to read on. It has been an interesting and informative read, honestly.
Interesting, I always stick more to stocks, but I'll have to look into bonds for future investing.
Investors in high income brackets are almost always better off investing in tax-free municipal bonds.
I ve tried the municipal bonds but this is a really slow and weak investment, it takes a lot of time and give you nothing. Go for something else.
Nice article about investing.
But the big question I have is this: Is 5% sustainable in a global economy at the moment?
Growth is not occurring at anywhere near 5%, we will be lucky to see an over all economic growth of 1% for the next few years all considering.
Look at it from that perspective, that is 4% coming out of thin air due to lack of productive growth to offset the interest. That kind of interest is not sustainable nor is it helpful for the area as a whole. Quality of life will suffer in areas that continue to follow paths like this.
Even one of the top bankers in the IMF said that 1% was about as much as was reasonably sustainable when it comes to interest at the moment.
Japan has lowered their prime lending rate to 0%. Japan for God's sake...the second largest economy in the world.
Anyone who would ask for 5% interest is only looking out for themselves and not humanity as a whole. If this is ok with you then by all means go right ahead and give it a whirl...just don't be surprised when townships, cities, states, and even nations start to default on loans in the future.
I think it's a difficult time to be confident in any retirement savings right now, after so many people lost so much in the last two years or so. Spread your money out across a variety of bonds, savings and portfolios - that's my advice.
Excellent information on the municipal bonds. I would definitely recommend your site for better understanding. Thanks for sharing this information.
It's a good post for the municipal bonds issue, many still don't have any idea about it, thanks for explaining it us
This information about retirement income is very usefull, thank you.
Can't wait to see what you think are the dangers of municipal bonds
This is an eye-opener to me. A broker once introduced me to this kind of bond and I tell you, I got so interested in it. Thanks that I read this article and that you gave me a lot of idea. I am now aware of the advantages and disadvantages of investing to a municipal bond.
A municipal bond is a bond issued by a city or other local government, or their agencies. Potential issuers of municipal bonds include cities, counties, and redevelopment agencies. Municipal bonds are sold lacks regulation and disclosure and you’re about to learn what your broker will never tell you.
Hi admin, I must admit that your article are really useful. Your explanation is very interesting and gives me useful information about Municipal Bonds for Retirement Income. I think it’s a good article you have here. I will keep in mind your site if some one asking me about things that you mentioned. Inflatable Hot Tub
Thanks for the information, really informative - must admit I don't know much about municipal bonds so I feel educated now!
Thanks for your information. Although municipal bonds is exempt from tax, they still in your temporary income, you may have to pay your social security system.
Municipal bonds are really not the best way to invest money in. A simple math shows it very clearly. Thanks for your post!
With the financial issues that many jurisdictions are having, some may be nervous about investing in municipal bonds. Do your research before you buy these.
I was not having any idea about the municipal bonds but after reading your post I have got bit knowledge about it.
Interesting! I wonder if similar rules for municipal bonds may be used in my country?
Interesting blog! I am interested in retirement. I am an attorney specializing in DUI and Personal Injury in Chicago Illinois. I should really be retiring but I am concerned about my income and supporting my family members. I have been practicing law for 30 years. I will check back to read more!
-www.mainstreetlaw.com Webmaster
well looks like the municipal bonds still enumerate in the direction of your provisional earnings when it arrives to the earnings levy you may have to yield on your Social Security. Municipal bonds has been an Issue that I have been having rather a hard time grabbing it. nice work...keep it up
haha municipal bonds just amuses me from time to time.
Its good retirement people.Its a greater source of get those information.People so interested.
Thanks for all the information about municipal bonds. I am starting to get really interested about it.
I remember Ross Perot having some 100 million in munis. Seemed like a great source of tax free income.
I haven't thought much about municipal bonds but I appreciate your outline of the benefits. I also appreciate the direct advice of considering them above certain tax brackets.
had no idea about municipal bonds. good info.
Actually, times like these are great times to invest. When the markets are down. A trainer used to say, "Invest when there's blood in the streets!"
Municipal bonds, its very hard to choose wisely these days. Alot of scammers banks are also not stable. Maybe its just better to get a vault and invest in no investments.
bonds is safe for investment?
ya Municipal Bonds may prove best interest paying and tax saving policy. I'll go to Municipal branch near my city to get full information. Thanks for posting.
Is the income tax the only basis for you to get into this investment? what if I pool in with 2 of my close friends to get the needed capital to buy into the bonds? would it be possible?
Thanks very much for your nice thoughts on Municipal bonds and and your advice on when to go for taxable bond.
Yeah what you said is right For muncipal bonds the interst is hig & tax free..
I appreciate that you have shared interesting info about this retirement income. Thanks so much for sharing this one here.
Always a hard subject, those retirement incomes great post
Thanks for all the information about municipal bonds.
This has to be more than luck I spoke to a broker and he brought up municipal bonds and I had a feeling he wasn't telling me everything I needed to know. Your article has just taught me more in five minutes than that broker did in 3 hours. Thanks.
This is a good and alternative way to create a saving for retirement. I love the article.
your blog has good information especially for senior citizen looking for extra income
Apart from relying on municipal corporate bonds and others after retirement people can do some simple job sitting in their home using computers and internet and the skill they are possesing
This Municipal Bonds is a good option after retirement because it is Tax Free. It is a big help to all retired people, much better if before retirement everyone will prepare their future because we will know what will happen. Investing is one of the best way to ensure the future and municipal bonds offers a good choice.
allied movers / allied moving
Thanks a lot for the most valuable information.My uncle is retiring in january 2011 and i will definitely talk with him about municipal bonds.Thank you very much sir.
Never new that municipal bonds could be so important regarding the retirement income. Informative article, thanks for sharing by the way, I'm sure it will help a lot of people.
Well i think municipal bonds are some thing which we can called a real bonus after retirement for senior cetizens. People are paying the attention more towards them.
logo design
I thought that price for municipal bonds were published in the newspaper. Nice to know that they aren't.
Because municipal bond yields DO NOT have a constant relationship with others types of retirement income options, one must analyze at the time of investment which type of bond would bring you put ahead. The next paragraph illustrates.
This information about retirement income is very usefull, thank you.
Enjoy your retirement now! If you would like to chat and play on webcam with the sexiest girls on the internet, live and for free, then visit http://www.topcamgirls.tk/
Have fun 😉
Thanks for the info, it helped me understand Municipal Bonds better.
Thanks for all the great info on Municipal Bonds, but what your opinion with economics crisis in europe?
Municipal Bonds is a valid solution... but why tv don't speak about?
Original issue discount (OID) refers to a debt instrument initially issued at a price substantially below its face amount (i.e., at a deep discount). OlDs can also be bonds issued as zero coupon bonds. A zero coupon bond (also referred to simply as a zero) has no stated or coupon interest rate and therefore pays no periodic interest. Non-zero deep discounted bonds are priced well below par at issuance but have regular semiannual or annual interest payments based on their stated interest rate.
BACKGROUND
In the late 1970s and early 1980s, interest rates were at historic highs. In an attempt to reduce their periodic cash outflows for interest, borrowers, both corporate and governmental, began issuing bonds carrying very low stated or coupon interest rates relative to those prevailing in the marketplace. During the 1980s many leveraged buyouts were financed with deep discount bonds of questionable creditworthiness and earned the name junk bonds. These bonds are now called "high-yield" bonds.
The U.S. Treasury has been selling zero coupon bonds for many years in the form of Series EE U.S. savings bonds. For example, a $25 investment in a U.S. savings bond can return $50 at its maturity with no periodic interest payments. The interest return to the investor is implied in the difference between the deep discounted price ($25) and the maturity value of the bond ($50). The U.S. Treasury adjusts their yield by changing the time to maturity.
By 1982 the popularity of zeros encouraged the U.S. Treasury to allow U.S. government securities dealers to strip the semiannual interest coupons from a group of bonds, and to sell blocks of same-maturity coupons and principal to investors as a zero coupon bond derivative (ZCBD). Broker/dealers developed portfolios of ZCBDs bearing the name of aggressive, coy animals:
* LIONs: Lehman Brothers' Lehman Investment Opportunity Notes
* TIGRs: Merrill Lynch's Treasury Investment Growth Receipts
* CATS: Salomon Brothers' Certificate of Accrual on Treasury Securities
In 1985 the U.S. Treasury began issuing notes and bonds tailored as zeros known as Separate Trading of Registered Interest and Principal Securities (STRIPS).
Municipalities also worked zeros into their debt structures. The high interest rates during the 1980s made it almost impossible to issue municipal bonds. The Tax Reform Act of 1986 lowered the maximum tax bracket to 33 percent, making the tax-free aspects of municipals less attractive. In the face of high debt costs, declining demand, and decreasing bond ratings, municipalities began issuing zeros with U.S. Treasury-backed zeros as collateral.
Regards,
Carolyn Ruschp
http://commodityconsultant.com
Interesting blog! I am interested in retirement. Thanks for all the information about municipal bonds. I am starting to get really interested about it.
You shared a very useful and a very interesting topic. Everyone needs to take a look at of this and understand it well. Thanks for sharing of the Retirement Income Blog. I am looking forward for your more postings.
I don't dare buy bonds from my state I live in New York and with the mess our state government has us in it doesn't seem like the wisest investment. I like to invest my hard earned dollars into a state or company that understands fiscal responsibility
Looks like I need to get into municipal bonds. Thanks for the info!
I have added municipal bonds to my portfolio and I will be doing more with these in the future.
As a trend stock trader I'm a complete dummy about bonds. This is an especially well done article for the real basics of municipal bonds. Specific examples really help folks to understand. Looking forward to the article about the downside.
I would suspect that maybe the length of the bond is an issue? Do longer terms pay better returns?
Thanks for the insights.
I have always been interested in municipal bonds but without having a good understanding it is one of those that I have put off learning more about and I guess my question would be - is there a lower amount that I would need to invest to get the best out of it - currently I have a little money saved up but not anywhere near $25000 - would it still be worth me getting municipal bonds?
This is great information about municipal bonds. I really learned a lot.
This information about retirement income is very usefull, thank you.
Great post, its very information, i may be starting to research into municipal bonds. If you have more resources on it, can you please share ?
anks for all the information about municipal bonds.
Thanks for the valuable information about municipality bonds, now like to pass on the info to my father who is about to get retired. Thank you so much sir
I have always been interested in municipal bonds but without having a good understanding it is one of those that I have put off learning more about and I guess my question would be - is there a lower amount that I would need to invest to get the best out of it - currently I have a little money saved up but not anywhere near $25000 - would it still be worth me getting municipal bonds?
Interesting blog! I am interested in retirement. Thanks for all the information about municipal bonds.
Thanks for the info, it helped me understand Municipal Bonds better.
Do you think State budget shortfalls will hurt municipal bonds in the coming years?
really very nice information about the municipal bonds for retirement income. you have provide a great resource for senior citizen as well as mid age people..
Thank you so much for your information sharing such a great information for us that inspiring to me about Municipal Bonds for Retirement Income.
is it still even possible to get 5% from a tax free bond. I haven't seen that kind of yield for a while now, but maybe thats because I have been watching stocks more than bonds the last year or two. Thanks for the info.
JR
Once again we have a tremendous opportunity in high quality (insured, even) muni bond cefs --- don't miss it!
Insured, Tax Free, Municipal Bond CEFs Yielding nearly 7%. Interested?
Of course you should be interested!
There are at least eight reasonable explanations for recent Municipal Bond price weakness --- there are at least eight excellent reasons why investors should be viewing this weakness as a buying opportunity.
I didn't have any idea about Municipal Bonds before read this article. Thank you so much for the information and waiting for the next post dangers of municipal bond funds.
I do have some knowledge about bonds but never heard about Municipal Bonds for Retirement Income.
great! it's nice to find a method of retire early! 😉 useful resource for people over 50 years old.
i found it very helpful to know with family
dating
find out if someone is married
Thanks for the great info about Municipal Bonds!
Wow, you make municipal bonds sound like a no-brainer. lol, I feel like I have no brain now since I don’ t own any.