If you are a closed-end investor, try a tax-free fund like Nuveen Insured Municipal Opportunity Fund (NYSE:NIO), trading at a 10% discount to its net asset value and yielding over 6% paid monthly.

Or, to avoid annual expenses and have the certainty of a final value on a particular date, buy individual tax-free bonds.

But whatever you do, buy them now. Let me count the reasons why you should…

Three Reasons Why Municipal Bonds Make A Good Investment Now

1. Ten-year municipal bonds, while down from the historic premium they reached a few months ago, are yielding as much as 10-year Treasuries. But while Treasuries are taxable, munis are not.
2. Most municipal bonds are safe. Yes, a few areas – particularly in California and Alabama – are troubled. But the historical default rate on municipal bonds is just 0.3%.
3. Taxes will soon be going higher. A lot higher.

Yes, I know that when President Obama was Candidate Obama, he promised a tax cut for 95% of Americans. But that was then.

The Fallout From The Government’s Massive Spending Spree

Since that time, we’ve seen the federal government…

• Ride to the rescue of General Motors and Chrysler.

• Pass a massive $787 billion economic stimulus.

• Spend hundreds of billions more to recapitalize banks, bail out insurance companies and “fix” the mortgage market.

Now, the Obama administration is proposing the biggest changes to the healthcare system since the advent of Medicare in 1966. It’s planning to spend billions more to lighten our dependence on foreign oil and reduce carbon emissions. And it’s urging policy makers to rewrite the rules governing the entire U.S. financial system, spending who knows how many billions more.

As for candidate Obama’s promised tax cut, I’m reminded of the remark former Clinton aide George Stephanopolous once made to Larry King, “The President kept all the promises he intended to keep.”

The consequences of all this new federal spending and encroachment into the private sector won’t be fully apparent for years to come.

But the wild fiscal imbalance is already crystal clear. Washington politicians will soon demand that you sacrifice even more of your paycheck so that they won’t have to sacrifice the near erotic charge – and high incumbency rate – they get from spending it.

This is ironic when you consider that to a large extent it was government that landed us where we are today…

The Buck Stops With The Federal Government

Sure, the mortgage boom and housing market bust was due in part to shameless lenders, greedy borrowers, and unscrupulous Wall Street types. But who set the stage for them?

Who took short-term interest rates to the cellar, creating a massive incentive for consumers and investors to borrow? The federal government.

Who gave real estate investors a $500,000 tax exemption on their profits from flipping houses every two years? The federal government.

Who passed laws criminalizing banks’ failure to lend to subprime borrowers? The federal government.

Who set up quasi-government institutions Fannie and Freddie  – or, as I prefer, Phoney and Fraudy – to warehouse those bad mortgages, leaving taxpayers to pick up the tab? The federal government.

And what will we get as a result of this supposed “failure” of the free market system? More federal government.

I’m not sure whether to laugh or cry. But I am sure our Founding Fathers must be spinning in their graves.

How To Combat The Growth Of Government… And Taxes

Thomas Jefferson said, “That government is best which governs least.”

George Washington said, “Government is not reason, it is not eloquence, it is force.”

No wonder polls show that more than 60% of Americans are skeptical of increased government intervention in the economy.

They suddenly recognize that we’re in for a lot more government, a lot more “market failure”… and a lot more taxes.

Sadly, there isn’t much you can do about it… except buy munis now.

Source:  How To Fight Back Against The Government’s Imminent Tax Hikes

There have been seven different presidents since I entered the work force in 1971. I have no idea how many times control of congress has changed. What I do know is that my taxes have never gone down, except under Reagan. I did notice a little dip for a few years when his tax reform package made it into law. That didn’t last long.

There has been non-stop political rhetoric for 30+ years from the professional money spenders in Washington about giving the average guy a break. That’s what they really do you know, spend other people’s money as a career. But, except for the temporary relief under Reagan, no matter who has been calling the shots, my taxes have gone up.

From my perspective, political affiliation of the decision makers makes no difference. No matter who has touted tax relief, I haven’t seen any change.

Right now, when you add up all of our taxes, (federal, state, local, FICA, Medicare, AMT), we, the middle class, are left with about 55-60 percent in take home pay. That doesn’t include estate taxes.  That seems steep no matter how much you make. Keep in mind that’s take home, before real estate taxes, gas taxes, sales taxes, cell phone taxes, road use taxes, you get the picture.

Do we really know how much we pay in total taxes? No! Most people can’t tell you what tax bracket they’re in.

In the 1990’s I ran, on average, 30 to 40 workshops a year for retired, or about to retire investors. Most were successful people. Most had jobs with responsibility and all earned a good living, good enough to have saved enough to require they seek help with their money.

At many of these workshops, I presented tax-free bonds as a safe vehicle for those in the higher tax brackets. In order to calculate the benefit of a tax-free investment you need to know what percentage you are paying in federal taxes. That allows you to calculate your taxable equivalent yield.
Without exception, not one person in any group had any idea what percentage they paid in federal income tax. Most thought if you had to write a check to mail in with your return, that was your tax. I’m not exaggerating.

Here’s how I look at my tax bill. I total all my income, including dividends and capital gains, and I divide that into the total tax owed on the back page of my 1040 form. Not the adjusted gross income, the actual total tax owed.

This is my real federal tax percentage. Mine has gone up steadily since the late eighties. Not just my tax amount, the percentage has gone up.

Despite detailed record keeping, maximizing the few deductions we still have, interest from two mortgages, I’m still getting crushed. In 2007, after all was said and done, my percentage was more then three times what it was twenty years ago. Believe me, my income has not tripled.

Speaking of deductions, what happened? Most of you reading this remember when we had all of our deductions taken away as a result of the tax reform of the 80’s, interest from car loans and credit cards stand out in my mind. In return, we were guaranteed two tax brackets, 15% and 28%. That was supposed to be it. It was as close to a flat rate tax as we have ever gotten.

Now we have brackets at 15%, 28%, 31%, 33% and as high as 41%, and the AMT and the Medicare tax, but none of the deductions we had before tax reform.

The craziest part of this story is that despite how much our professional spenders in Washington collect, they manage to spend more… a lot more. This year to the tune of about one trillion dollars. They take their jobs very seriously.

Elected officials who make a career of spending others money, taxpayers who have no idea how much they really pay in taxes, a tax code that requires a graduate degree to understand it, tax relief that always seems to end up costing us more and we are in worse fiscal shape now than 30 years ago.

In 1982, I bought my first house… three bedrooms, two baths, a nice lot in a nice neighborhood. Nothing flashy, just a nice house. Today that house is 6.5 times more expensive than it was in 1982. During that same period, my income tax percentage has tripled.

Even though I have done well for myself, my income hasn’t even begun to keep pace with the increase in the cost of that house, and it hasn’t kept pace with the increase in my tax percentage.

How’s the middle class doing? Dying a slow death.

Now we have another administration that’s talking about the needs of the middle class and all but guaranteeing another tax increase. I think I’d prefer if they focused on another group.  The middle class has had about all the help it can stand.

Source: Why Do Tax Cuts Always Cost Me Money?

You also have to know that the Social Security System was flushed away by congress a long time ago. The general fund, or the excess contributions made to Social Security for the last 50 years, was squandered along with another nine trillion dollars.

That leaves all of us over 50 with the responsibility of funding most, if not all of our retirement. Unfortunately, the down turn in the stock market, as the result of congress mandating that Fannie Mae (FNM) and Freddie Mac (FRE) guarantee mortgages to people who could never possibly pay for them, has crushed an entire generation’s retirement funding.

The simple fact is, since ‘87, the majority of Americans have poured almost all of their retirement dollars into stock mutual funds in their IRA’s and their 401k’s. Prior to the mid 80’s all of it went into bank investments. Our exposure to the stock market is the largest and most wide spread ever. Losses in investments this time will be much greater than 1987.

Time has almost run out! For the majority of Boomers there is only one more opportunity to secure their retirement. Most of us will live far below what we should have been able to afford no matter what we do. But, if we don’t spend the next ten years doing more than playing the stock market lottery, we are in deep kimshi.

Every person over the age of 50 has no choice but to shift into a reduced risk investment strategy. We no longer have enough time in our working lives to wait out another disaster in the stock market. We also cannot delude ourselves that we will somehow avoid another huge down turn in the market.

The truth of the matter is that the very nature of the stock market is to flush out the weak every few years. No one knows what will cause the next explosion, but it is coming.

There is some good news. Holy cow! Do we need some good news, or what?

Reduced Risk Portfolio.

Most investors avoid this type of strategy because it implies stodgy, turtle like returns. But if you reduce the risk level of your holdings by diversifying into corporate or tax-free bonds, you don’t necessarily reduce your return. In fact, history has taught us you actually increase your overall return because you don’t give back any in a correction, almost zero.

The stability bonds add to your portfolio will actually let you sleep at night. You know going in exactly how much you will make and exactly when it will appear in your account. And with a little effort, you can see the same returns from bonds that the stock market has produced long term.

In the past few corrections you ended up giving back almost as much as you earned during the Bull Run. The really sad part is that most people have to get hit over the head many times to get the message. Most have nothing left by the time they learn the truth about stocks.

The critical point for the boomers reading this is, you don’t have the time anymore to wait out another correction. If we get slammed again, we don’t have the working years left to replenish our accounts. We will be up the proverbial creek. This is your last window of opportunity to secure a retirement.

If there is any good to come of this sell off it may be a final wake up call for us to stop playing Vegas with money we can’t afford to lose. We are not 35 years old anymore with 30 years to get it right. Get it right this time or learn to live below the poverty level.

In my head I am still 25. I am still thin, fast and almost immortal. But my lower back tells me loud and clear I am 55. We all need to feel our age in our wallets, too.

This country is on the verge of a financial tragedy. If the baby boomers don’t wake up and get their money house in order, we could be setting up our children to live at the third world level. The financial burden of keeping us in our old age will make their lives a mere shadow of what we have known.

Our time is not running out, our time is up.

Let the other guy go down with his ship. We live to fight another day.

Source: The Baby Boomers’ Last Window of Opportunity