How to Use Treasury Bonds for Retirement

When you are planning your investments for retirement, you have several factors to consider. You will need to think about how long you can have your funds tied up, your risk tolerance, and the amount of interest you will receive on your investment. The good news is Treasury bonds can fit the requirements of many investors because they are backed by the U.S. government. There are a few things to know about them.

Understanding Bonds

Treasury bonds are a form of government debt, and they are sold to the Treasury Department. They will pay a certain amount of interest every six months until they are mature. Typically, the date of maturity will be in about 20 to 30 years, so purchasing them while you are young allows you to use the mature funds when you have retired. Know that current market conditions will affect the interest rates, so they could go up or down. Any funds you choose to use for bonds will be tied up for quite a while, so make sure you won’t need access to the money for that time. Consider getting your finances in order before making large investments such as bonds. If you have student loans, you can use an Earnest student loan refinance to lower monthly expense, freeing up funds for investing.

Buying and Selling Bonds

The Treasury Department holds online auctions to sell Treasury notes. After you have purchased, you will have a couple of options. One is to hold it until it has matured, and then you will receive the initial investment back. In that case, the government will pay you back. But you can also sell the bond before its maturity date. You could sell it on the bond market, which is a secondary market. But know that selling it early does not guarantee you will get back the same amount you paid for it. Evaluating current market conditions can help you determine how to invest your money and when to sell.

Corporate vs. Government Bonds

You likely have heard about investing in corporate bonds, which are issued by large organizations. You may receive a higher rate of return from corporate bonds, but they also come with a higher risk. If the corporation goes out of business, you could lose the funds you had put into the bonds. If the company defaults on the bonds, you won’t get any money. The company’s financial status will determine the level of risk the bond has.

Benefits of Purchasing Treasury Bonds

Do your research to determine if this investment vehicle is right for you. One of the benefits is that the bonds pay interest on a regular basis, which can be a steady form of income. Because of the steady return rate, you can more easily offset any potential losses from other portfolio losses. There are also few, if any risk, associated with Treasury bonds. That means you are not likely to lose your principal. Holding the bond until it is mature guarantees you will receive at least the initial amount back.