At this point, I'm trying to save aggressively for my retirement. I haven't come close to narrowing down a preferred retirement age, nor have I figured out where I might want to live.
But one thing I do know is that I don't want to struggle financially as a retiree. So I'm doing my best to max out my retirement plan year after year.
I'm also trying to invest for retirement in a savvy manner. And because that milestone is decades away, I'm largely loading my portfolio with stocks.
Image source: Getty Images.
I know there's a risk there, but I'm not planning to tap my retirement savings anytime soon. As such, I figure I have time to ride out market downturns.
But while I don't have a particularly large portion of my portfolio in bonds right now, come retirement, I expect that to change. 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.
Now there are different types of bonds you could choose to invest in as a retiree. But there's one specific type I'm focusing my strategy on -- municipal bonds.
Why municipal bonds appeal to me
Taxes are a headache I have to deal with year after year. And I'm tired of the IRS taking so much of my money.
What I really like about municipal bonds is that the interest payments you collect from them are always tax-exempt at the federal level. And that's important to me, because right now, I have a lot of my retirement savings split between a traditional IRA and 401(k) plan. This means that withdrawals from those accounts will be subject to taxes.
I figure that if I invest separately in municipal bonds, I'll at least have one source of income the IRS can't touch. And while municipal bond interest payments can be subject to state and local taxes, that won't happen if you buy bonds issued by your state of residence.
Now to be clear, that tax-exempt status refers to interest income only. If you buy municipal bonds and their value rises, selling at a profit will mean facing capital gains taxes the same way those taxes would apply to the sale of stocks. But if I can eke out some steady tax-free income, it'll give me one less thing to stress about financially in retirement.
An option worth considering
You may decide to make changes to your investments once retirement rolls around. And while bonds in general are usually considered a safer alternative to stocks, with corporate bonds, you're looking at taxes on the interest income you receive. If you like the idea of securing some tax-free income at a time in your life when your income might drop in general, then consider loading up on municipal bonds for that major benefit.
