Hopefully, we will figure out our financial path during our 20s, 30s, and 40s to focus on our family in our 50s. That’s right; time to build passive income for our children through bond investing.
Can you imagine if you had $20,000, $30,000, or even $50,000 of Series “I” bonds waiting for you by age 30? That’s the premise of investing in bonds for your children during your 50s—to set them up for a big payoff mid-life.
We also don’t want to forget about ourselves because retirement is right around the corner. It will be a busy decade for bond investing and preparing for everyone’s future.
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Ensure your income is good. On an airplane, you must ensure your gas mask is good before you help someone else. It’s the same for retirement planning.
In your 50s, you should have enough income to retire. Let me rephrase—you should have enough income to lead to a successful retirement.
For example, having $1,000/month of bond coupon payments can lead to much more income with high-yield bond reinvestment over ten years.
So you may need more income, but you have the nest egg to push you toward success. You have completed the difficult part of saving and investing.
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For example, I earn $1,1000/month in dividends at age 41. I never have to add another penny to this portfolio, and I will still achieve a great retirement income by age 60.
Before you start looking into investing for your children, ensure your nest egg is moving in the right direction. We want to support ourselves in retirement entirely.
The greatest gift we can leave our kids is not to worry about us financially throughout our lifetimes (and some bonds on top of that).
Series “I” Bonds for everyone. Series “I” Bonds are outstanding because you can invest $10,000/year for someone else.
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I would love to set a lofty goal of investing $10,000/year for everyone in my family. So my family of four would require me to invest $40,000/year. Is this feasible?
I don’t know at the moment because I am 41 years old today. Hopefully, we can hit this point with nine more years of investing.
The important part is that we are planning toward a passive income future. Again, we can build an excellent bond portfolio for our children by investing in Series “I” Bonds.
Series “I” Bonds vs. Index funds. What do I recommend first, investing in index funds or Series “I” Bonds?
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I recommend index funds first for children’s investment portfolios. It is much easier to dollar-cost average into a custodial account (like STASH) than buy Series “I” Bonds from Treasury Direct.
Also, our kids have 30-50 years to grow their investments in the stock market. Currently, I am investing in index funds through the downturn.
Over the years, these down periods will be our most significant source of wealth creation. So I prioritize index funds over Series “I” Bonds for long-term investing.
Series “I” Bonds have a different purpose. However, Series “I” Bonds are much more functional than index funds. Our kids can pick the correct bonds to sell by having a massive collection of bonds.
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For example, if they need $1,000, they can sell a bond worth $1,000. They can also easily leverage against their bond holdings.
Also, you can redeem Series “I” Bonds tax-free if used for qualified educational needs. So, our kids may be able to save a ton of money on taxes with skilled usage.
The best case is to have Series “I” Bonds as a functional nest egg and index funds as a retirement portfolio. In essence, Series “I” bonds can serve as a pseudo-emergency fund.
Income for retirement. However, you must remember your income needs for retirement. You have some tough decisions in your 50s.
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The main question is if you will seek income directly from Treasury bonds or use closed-end funds.
I prefer to use CEFs as my high-income generation method. However, I also have a nice military retirement coming my way.
Are 4% bonds enough to carry you through retirement? Capital preservation is your number one priority if you do not have a pension.
Do you sell out during a bull market if you have index funds? Can you risk going into a bear market and losing 40-50% of your capital gains?
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Start planning for the long term now. If these questions scare you, you need to do more research. These questions should motivate you to learn more about the markets.
If you are truly worried about questions like this, you are not diversified enough. Stocks and bonds are great, but they are not the “end all, be all” of income.
I started a blog with the long-term goal of earning passive income in my 50s and beyond. Real estate is also a hedge against uncertainty as you move into retirement.
If you predict your income falling short as you hit retirement age, you will need to take drastic measures promptly.
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For example, if you have a shortfall of $1,000/month, you can quickly cover this with a roommate. However, you can invest the money from the roommate into high-yield bond funds like PDO and PTY.
Before you know it, you will have $1,000/month coming in from closed-end funds AND $1,000/month from your roommate—giving you the option of keeping the roommate.
Conclusion. My wife and I mainly started earning $1,100/month in dividends by having roommates for four years. Most people do not want to consider this option.
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However, most people are not sitting on $1,100/month in dividends. If you want to have a cash-flow-heavy retirement AND invest in your kids, you must take extreme measures.
Bonds are a great way to protect capital, but with high safety comes low yield. You need to position yourself to allocate some money toward CEFs.
Income investing is how you truly replace your paycheck, along with a business, roommates, and royalties. Start thinking outside the box if you have less than $1 million in 4% bonds ($40,000/year).
The goal is to get yourself to $100,000/year in passive income and set your kids to hit that number in their 40s as well. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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