What the experts say

Spicing up muni yields

With municipal bond yields “at unprecedented low levels,” many income-oriented investors have turned to taxable debt and dividend-paying stocks, said Katy Burne in The Wall Street Journal. Now JPMorgan Chase has concocted a “spicy cocktail” to lure them back: the Tax Aware Income Opportunities Fund. The bulk of the fund’s $25 million portfolio consists of conventional municipal bonds. The spice comes from the derivatives and ultra-short-term instruments that the fund’s managers use to boost returns. The fund generates additional income by selling credit default swaps—default insurance—on municipal-bond indexes and corporate debt. The aim is “to provide enough cushioning to withstand inflation and interest-rate increases.”

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As life expectancies increase, so do retirees’ fears that they’ll outlive their income, said Kimberley Lankford in Kiplinger’s Personal Finance. Longevity insurance, say some experts, is a “brilliant solution” to that problem. It’s actually a specialized annuity, funded by a lump-sum payment, that lies dormant until it begins paying out, usually when the retiree turns 85. Retirees essentially bet that they’ll live past that age. If they do, they’ll collect from the insurer until death. If a retiree dies before 85 (or whatever age triggers the annuity payments), the insurer keeps the principal and any gains on it. Retirees can structure their retirement income to last until the trigger date, after which the annuity kicks in.

Correction

An article in the April 29 Making Money section titled “Tax-credit headaches” provided misleading information about a special federal tax credit for first-time homebuyers. The $7,500 credit referred to in the article was signed into law in 2008 by President George W. Bush and is distinct from two other homebuyer tax credits that became law in 2009. Under the provisions of the 2008 law, qualified purchasers who bought a home during that year are eligible to claim a tax credit of $7,500. The credit must be repaid in 15 equal, interest-free installments beginning in 2010. The tax credits established in the 2009 laws do not have to be repaid, unless the home purchased ceases to be the taxpayer’s primary residence within three years. We regret that the original article suggested that those who qualified for the more recent tax credit have to pay it back.