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Yes bonds are ok but first make sure you understand how increasing interest rates affect the value of your bond.
Interest rates are very low now. They are projected to increase for the next few years. Thus if you put 100,000 into a long term bond mutual fund at say 4% your 100,000 could be worth 90,000 in 10 years.
If you bought a 100,000 government or corporate bond (not an ETF or mutual fund) that matured in 10 years it will be worth 100,000.
The point is buy individual bonds. But then you have the credit risk.
Another problem with the bonds (also savings accounts, CD's etc) is inflation. The buying power of your 100,000 in 10 years could be say 85,000. Yes you would get 100,000 when you cash the bond in but when you go to the store to buy food you would only get 85,000 of food compared to 10 years ago.
The point is their is no safe investment. Equities can be safer than bonds as the value of your investment will probably increase by at least as much as inflation. But in equity investments you do have more risks and have to stay with the investment when it goes down.
I would do a little bit of studying about buying and holding dividen stocks. I would also by ETF funds.
Maybe see if you have a community college or can find a free online course that teaches about investments. If not that you might want to hire a financial planner.
Seems like a lot of headache. Remember in 2000 when CDs were offering 5, 6, and 7 %
OK,... the 20% Tax is NOT the Tax Rate, (or Capital Gains Rate)
its just what they withhold on the Pre-Tax Interest amount. When you do you taxes the following year, the actually rate will be calculated,
IF you are under 59.5 the 10% Early Penalty will also be applied, when you do your taxes.
a 7.5% + 3% Cost of living is very good,
Yes the 7.5% rate is very good, But you can expect that to go down over the next few year as the higher interest rates holding in the fund expire/age out.
As you pull money out of the fund (thru a pension/payment) some percentage will be taxable on your 1099R will show how much is PreTax and How much is AfterTax money.
seems like this operates like an annuity. As mentioned it isn't capital gains and you'll have the early withdrawal penalty, which makes more sense for it to be qualified money eligible to be rolled into an IRA. Appears to be a well run and funded plan, which is great. I'd consider leaving the money there if you can.
If you no longer work for an IMRF employer:
You will receive a refund of your VA contributions and all interest earned.
The interest earned on your VAC is tax-deferred. If you do not roll over your interest directly into an IRA or other qualified retirement plan, IMRF is required by federal law to make a tax withholding of 20% of the interest. If you are under age 59-1/2, you may have an additional early withdrawal tax.
Seems like a lot of headache. Remember in 2000 when CDs were offering 5, 6, and 7 %
You can buy a short term bond fund that is much less sensitive to interest rate increases, but short term bonds pay less in interest, so it can turn out to be a wash. If interest rates go up gradually, it's not going to hurt you that much. It will be a short term hit, but then the new bonds the fund buys will pay higher interest going forward.
You can buy a short term bond fund that is much less sensitive to interest rate increases, but short term bonds pay less in interest, so it can turn out to be a wash. If interest rates go up gradually, it's not going to hurt you that much. It will be a short term hit, but then the new bonds the fund buys will pay higher interest going forward.
I want no risk or super low risk. I don't want to lose any principal (the interest)...
Maybe bonds are the way to go..
I'll have a pension at 50 and abou 1.5 million net worth including the 250k that has to be put in a retirement account
not many of us would take the inflation hit . . the market hit is likely a meaningless temporary drop . it has NEVER not been .
in fact even if you look at the lost decade which consisted of the dot com crash AND the greatest financial collapse since the great depression , unless you exhibited poor investor behavior you were ahead.]
inflation losses are forever and hurt . trying to avoid risk generally ends up being the biggest risk over the longer term .
you have no options otherwise except annuity products , or cd's for the most part or hort term bonds , which have little return .
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