Forbes recently published a focused piece summarizing the top reasons to use bonds for investing. Here are those reasons, in no particular order, and my comments as they relate to using TIPS and I-Bonds for retirement income security:
1. Preservation of Principal. This is definitely number one on the list for retirement planning. Moreover, you cannot get any more secure than government-backed TIPS and I-Bonds.
2. Saving. I have to agree with this one as well although purchasing TIPS and I-Bonds even right before retirement can be valuable to provide income 10-20 years down the road.
3. Managing Interest Rate Risk. This is not important for bonds in a Failsafe Retirement Income Plan. What is important is managing inflation risk which TIPS and I-Bonds do but Forbes doesn’t mention.
4. Diversification. I agree with this although not for the same reasons proposed by Forbes. Using TIPS and I-Bonds to meet essential retirement income needs gives you the safety and freedom to diversify and take risks with your other investments.
5. Expense Matching. This means using income from bonds to match up with known future expenses. That’s exactly what a retirement income fund does.
6. Long Term Planning. Forbes doesn’t mention long-term retirement planning but what could be more important for the individual bond owner?
As a final note, compare these uses of bonds with comparable uses of equities. Game over.