After we retire, most folks will be losing our primary source of normal income: our paychecks. However, we have a tendency to will still need to secure a daily source of income to pay our day-to-day living expenses. Income in retirement can return from a variety of sources: pensions from outlined-benefit retirement plans and Social Security are two of the foremost common. However, as 401(k) plans and different outlined contribution plans have become prevalent in the workplace, many retirees notice themselves with a considerable nest egg that they have to take a position in such a method that gives income.

Investing in bonds remains one of the safest ways that to come up with income. If you hold your bond until maturity, you'll get your principal back, provided that the entity issuing the bond -- a private company or a government entity -- will not default. And in the meantime you'll be paid interest on a daily basis (ordinarily, twice a year).

A bond is a loan: when you purchase a bond, you're lending the issuing agency money. All bonds are issued with established maturity dates -- the date on which the issuing agency guarantees to return your principal to you. The maturity date will be one year, three years, 10 years, or longer. Additionally, all bonds pay interest at a set rate -- known as the "coupon rate." Bonds with longer maturities generally pay higher coupons. But, if you intend to carry your bonds until maturity, buying longer-term bonds ties up your cash for extended periods of time.

Bonds issued by corporations -- known as "company bonds" -- usually pay higher coupons than government-issued bonds, as a result of the chance of default is greater. It's usually best to stay with high-quality companies, whose bonds are considered trustworthy (and are therefore known as "investment-grade bonds"). Smaller, less-established corporations conjointly issue bonds, however because of the higher risk of default, these bonds pay even higher coupons. Sometimes, these high-risk bonds are referred to as "junk bonds."

The U.S. government problems bonds through the Treasury Department: these bonds, merely referred to as Treasuries, are among the safest investments you'll make, however they pay low interest. State and local governments conjointly issue bonds, called municipal bonds or "munis"; interest income from munis is federally tax-exempt in the United States.

One of the biggest risks that you take in purchasing bonds is inflation risk. Let's say you get a corporate bond for $10,000, with a maturity of ten years, paying a 3.five p.c coupon rate. Every year, you will receive interest payments totaling $350, and at the tip of 10 years you'll get your $ten,000 back. But, ten years may be a long time. Inflation may erode the value of your annual $350 payments. Inflation conjointly tends to drive up coupon rates offered by new bond problems, so when five years, new corporate bonds might be providing 5.5 percent interest. You'll continually sell your 3.5 p.c bond within the secondary market and buy a new bond paying 5.5 percent, however no one is going to wish to pay full price for your recent bond; you'll get something but $10,000 for it.

One technique to combat this risk, significantly if you're getting Treasuries, is termed "laddering." Purchase a series of bonds at completely different maturities: one-year, 3-year, 5-year, and 10-year, say. As the years pass by and your bonds mature, purchase new bonds, at the prevailing coupon rate, with the principal that is returned to you. This approach, you diversify your risk to allow for fluctuations in inflation, and in bond coupon rates.

Retirees who are inquisitive about bonds should place along a diversified portfolio of treasuries and corporates, adding municipal bonds if there are sufficient resources. Gauge how abundant interest you will be earning annually on your bond portfolio, and aim to hold your bonds to maturity. If you get pleasure from "taking part in the market" and have some talent in selecting investments, you'll set a tiny amount of money aside for trading bonds in the secondary markets, but it is best to play it safe with the bulk of your nest egg.