CHAPTER 4
Enhancing Your Retirement with Built-In Guarantees
ANNUITIES, BONDS, AND CDS
Money, says the proverb, makes money. When you have got a little, it is often easy to get more.
—Charles Dickens
In this chapter, I discuss the role of equity-based investments and bonds in your retirement income planning process. If you’ve felt the effects of stock market crashes, however, you may be wary of subjecting your assets to market risk. If you need to guarantee that your retirement assets will last for your entire retirement and you have accumulated enough money that an annual return of around 3 to 6 percent is sufficient for your income needs, then annuities, CDs, and certain types of bonds may be your best option. Optimally, these can also be blended with equities to provide additional growth against inflation and a stable income stream you can count on.
Bonds: What Is Guaranteed and What Is Not
Some types of government bonds—including U.S savings bonds, short-term treasury bonds, and some general obligation municipal bonds—resemble CDs and fixed annuities insofar as they carry little to no risk or volatility. By contrast, certain corporate bonds—particularly high-yield, long-term, and/or low-rated bonds—carry as much or more volatility and risk than equities. For the purpose of this chapter let’s define risk as the probability of losing the principal of your investment and volatility as the fluctuations in the stock market, bond market, or interest rates. Let’s turn for a moment ...
