Have you seen all the television ads extolling the virtues of retirement planning?
“Plan now,” an authoritative voice intones, “let us help you.”
Indeed, as the recent financial crisis indicated, it’s never too early to plan for retirement, and it’s impossible to time your golden years with optimal conditions in the equity markets. Although we heartily endorse the message, we find it a little disconcerting that the same financial institutions that now promise to help investors are the same ones that decimated investor retirement accounts and needed government bailouts for their own survival only a few short months ago.
What muni investors already know
Our investors have made it clear they don’t need to be reminded to prepare for their retirement. They’re already planning for tomorrow with a strategy that is simple, time tested and practically foolproof: Generate a steady stream of income that you can rely on for years.
As one of our long-time clients e-mailed us:
“I’m 85 years old and still investing in muni bonds. I started building a long-term portfolio in 1981 and it has been a great long-term retirement strategy. Why is it that investment brokers seldom, if ever, recommend this approach as an investment?” R.W., Arkansas
The likely answer is that municipal bonds are designed to be purchased, held and enjoyed for the income they generate. Most stockbrokers have neither the expertise nor incentive to assist investors in purchasing the muni bonds that fit their particular needs.
Successful muni investors buy high quality, long-term bonds and maximize tax-free income on each purchase. They know that this additional income will allow them to take advantage of higher bond yields if interest rates move up. They understand that over time, the value of their bonds will fluctuate, but the interest checks they receive will arrive like clockwork.
A new retirement opportunity
What’s more, a new tool has emerged for investors seeking a secure retirement: Build America Bonds (BABs). Since their introduction last year, BABs have proved to be highly successful. Now, the Obama administration wants to not only make the program permanent, but also expand it by allowing for refundings, as well as bond issuance by universities and not-for-profit hospitals. The administration’s proposal, in its fiscal 2011 budget, calls for reducing the federal subsidy from 35% to 28%, which would presumably make the cost to the government comparable to traditional tax-free bonds.
The administration likes them because they help the country grow by enabling municipalities to lower borrowing costs for job-creating infrastructure projects.
As we mentioned earlier (Popularity of BABs Bodes Well for Tax-free Bonds), they’ve also been wildly popular with investors, who now have the option of buying these higher-yielding securities for their tax-deferred IRAs and other retirement accounts, while taking comfort in the security and dependability traditionally associated with municipal bonds. In fact, as municipal bond specialists, we’re expanding our research and trading departments to accommodate the anticipated demand for these taxable securities. (To view some of our recommended offerings in this category, go to the home page on our Web site, click on the “Bond Offerings” tab at the top and select “Taxable Municipal Bonds.”)
Bond buyers have been planning for years
Although you may not see an ad blitz on television discussing the merits of tax-free – and now taxable – municipal bonds as important retirement tools, muni bond investors have, in effect, been planning for their retirement for years. It’s an old concept with even more opportunities today, as we’re regularly reminded by investors who were thankful for “staying the course” with muni bonds.
“As I get older, I look more and more like my dad,” a client e-mailed us. “And my portfolio looks more and more like his did!” J.S., Pennsylvania.