The U.S. Department of the Treasury will begin rolling out retirement bonds (R-Bonds) starting in January 2014. These government-issued savings bonds are aimed at employees working for companies that do not offer retirement programs. In this MarketWatch article, Noel Abkemeier discusses several issues related to R-Bonds:
Noel Abkemeier, a principal and consulting actuary with Milliman, an independent actuarial and consulting firm based in Seattle, had a laundry list of questions and suggestions. Among them:
What would R-Bonds provide that couldn’t already be done with an IRA? If this is taxed the same way as a traditional IRA, does it limit deductibility of the contribution inversely to income, and with the same limits? Or is it possible to have a Roth IRA version of the bonds?
What is the advantage of qualifying for rollover? That seems to fit somewhere between no-advantage and no-big-deal.
Where are the bonds held? Are they in an electronic notional account at the Treasury Department? Are they in your desk drawer at home? Are they at a brokerage account? If at the Treasury Department, there is the ultimate in portability, although that would not mean much.
If the bonds could be purchased with the filing of your tax return, it might add a little convenience to the transaction.
Are the R-Bonds inflation adjusted? Probably not, but that could be a potential advantage, if offered.
Will contributions be limited so it doesn’t benefit the wealthy disproportionately, as usually happens? This is an issue of both tax brackets and quantity of purchases.
What maturity will these have? Will yields vary depending upon maturity chosen?
Are there any reinvestment guarantees?
Will the bonds mature for a lump-sum payout? Or will they have a coupon payout for a fixed income at some point?
It would be better if they offered “lifetime income bonds,” which effectively would be deferred income annuities. They could have a cash-refund design so the purchasers would be trading lost interest for a lifetime income guarantee, while there was no fear of losing principal. This would send a strong message on priorities by merging the accumulation and decumulation challenges of retirement planning.
What will be the yield on the bonds? Will these have low Treasury yields, which is not the best investment for a complete retirement portfolio? Or will it be higher, which means that taxpayers will be funding government debt at a higher rate than is justified? How would the yield compare with a corporate bond no-load mutual fund?