It’s what you learn after you know it all that counts.
One of my earliest career responsibilities was managing municipal bond settlements. This included checking signatures and counting bearer bonds in the basement of the California State Treasurer’s office in Sacramento, bringing the multimillion-dollar settlement check to the closing, and then distributing the bonds to syndicate members who, in turn, would deliver them to investors, often retirees.
Unlike today, at the time municipal bonds had a series of coupons attached that allowed the investor to literally clip a bond coupon and then redeem it for the promised payment of interest on the bond. In the 1980s, these municipal securities often paid over 8 percent interest pretax—with an assumed tax rate of 25 percent, this equates to a tax equivalent yield of nearly 11 percent. Not bad! For a retiree, buying a ladder of municipal bonds with maturity dates spread out perhaps over a decade offered a fixed and steady income. This approach to buying bonds built a fixed income for the retiree.
Today, fixed-income investing continues to be at the center of retirement investing, although many aspects have changed: