Manage Your Retirement Plan by Investing in Municipal Bonds


A well-thought-out income strategy can help you save for retirement

At a certain point, saving for retirement should become a priority for everyone. During your earning years, it is essential to save what you can to ensure you can maintain your desired lifestyle and cover expenses, such as medical bills or property taxes. The question is: how confident are you in your investments?

Are You Ready for Retirement?
Your retirement plans may not be as ironclad as you think. Three-quarters of American workers contributing to workplace retirement savings plans are mistakenly confident they’ll be financially independent in retirement, but most have their savings bar set too low. Plus, undefined benefits plans, insufficient retirement income, and the possibility of long-term care can threaten to impact the retirement years of baby boomers across the country.

When it comes to retiring on your terms, it’s important to have a well-thought-out income strategy. Municipal bonds can be an appropriate investment option for accruing consistent income.

Investing in municipal bonds
State and local governments and public entities like universities, hospitals, and utilities districts issue municipal bonds to fund vital infrastructure development. Because they are issued by public entities, they provide investors regular interest payments that are generally exempt from federal income taxes, and in some cases state income taxes as well.*

Other features of municipal bonds may include:

  • Preservation of capital while earning interest – Exemption from taxes means that your investment of capital is not affected, and you are able to collect regular interest payments.
  • Tax or essential service fee backing decreases default – Municipal bonds can have a much lower rate of default. According to Moody's, the annual municipal bond default rate was about 0.03 percent between 2009 and 2014, whereas the corporate bond default rate was approximately 2.5 percent per year.1
  • Greater after-tax returns than many taxable bonds – The tax advantages of municipal bonds depend on where you live and how much you make when you receive the interest (e.g., if you live in a location with no state income tax). But in any case, it’s less than what you would pay in taxes on corporate bonds.*
  • Consistent and predictable income – Municipal bonds aren’t invincible, but they are one of the conservative investment vehicles you can have. In addition to the substantial tax advantages, they are liquid when held as exchange-traded funds (ETFs).2
  • Community-focused investments – Investing in your surrounding infrastructure, such as universities or hospitals, is an effective way to support your community and fellow citizens.

However, these highlighted features of municipal bonds shouldn’t be your only deciding factor. Investing in municipal bonds should be part of a well-distributed asset allocation plan guided by a financial professional with experience in fixed income investments. For more information on how HilltopSecurities can advise you on investing in municipal bonds, please contact us at 833.4HILLTOP.

1. “Are Municipal Bonds a Good Investment?” D.Moskowitz (Jan.19, 2020)
2. Ibid.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation, market valuations, prepayments, tax ramifications, and other factors.

The value of bonds fluctuates with changes in market conditions. Bonds are subject to market price and availability and are offered by official statement only. When sold, bonds and bond shares may be worth more or less than their original cost. Bonds are subject to price and availability. As interest rates rise, bond prices typically fall, which can adversely affect a bond’s performance. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. Call risks: Declining interest rates may accelerate the redemption of a callable bond, causing an investor’s principal to be returned sooner than expected. Not a recommendation for informational purposes.

*There may be federal, state, local (and/or) alternative minimum tax or capital gains tax obligations to which an investment in the municipal bond may be subject to.

Momentum Independent Network, Inc.(MIN) is a registered broker-dealer and registered investment adviser. MIN is a wholly owned subsidiary of Hilltop Holdings, Inc., (NYSE:HTH) with offices at 1201 Elm Street, Suite 3500, Dallas, TX 75270, (214) 859-1800. © 2021 Momentum Independent Network, Inc., Member: FINRA/SIPC. | All rights reserved.

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