Individuals saving toward retirement use a variety of investments to accumulate funds over time, including stocks, bonds and cash accounts. A Treasury bond (T-bond) is a common choice among investors with low-risk tolerances or a focus on generating income. Investments in T-bonds pay a steady rate of interest throughout the bond term, and each instrument is backed by the full faith and credit of the U.S. federal government. Unlike equity investments, T-bond returns do not fluctuate over time, and interest payments are exempt from both state and federal taxation.

Although there are clear benefits to purchasing T-bonds for a retirement portfolio, this investment may not be appropriate for all investors.

Young Investors

Most T-bond rates are tied to the five-year Treasury rate, and they often have a lengthy term. These aspects result in a relatively low return over time, creating a less beneficial investment for younger investors. Individuals who have 15, 20 or 30 years until retirement require more than the 2-3% rate of return earned on T-bonds within their retirement accounts to keep up with inflation each year. The steady interest payments provided by T-bonds can be beneficial for young investors, though, when combined with domestic and foreign stocks and corporate bonds within a retirement savings account.

Investors Near or in Retirement

The shift from capital appreciation on investments to steady income typically takes place when individuals are near or in their retirement years. The interest payments on T-bonds are consistent and guaranteed by the federal government, providing a predictable, safe income stream during retirement. Individuals gearing up for retirement can utilize inflation-protected Treasury bonds, known as I bonds, which offer an interest rate tied to inflation. These issues are available in shorter terms than traditional savings bonds, or EE bonds, and can be laddered to create a continuous income stream.