Income from interest, dividends and structured notes

Some retirees prefer to live on the income their investments produce, rather than selling investments to raise cash. The appeal is psychological as much as financial: when markets fall, interest and dividends usually keep arriving, so less has to be sold at low prices.

Bonds, Treasuries and CDs. These pay a stated rate of interest and return principal at maturity. A ladder — bonds or CDs maturing in successive years — can line up known amounts of cash with known future spending. Trade-offs: income is fixed and can lose ground to inflation, and bond prices fall when interest rates rise if they need to be sold before maturity.

Dividend-paying stocks and funds. Many established companies share profits through regular dividends, which have historically tended to grow over time. Trade-offs: dividends are not guaranteed and can be cut in a downturn, stock prices still fluctuate, and focusing narrowly on high yields can concentrate a portfolio in a few industries.

Structured notes. These are bank-issued investments that combine a bond-like component with exposure to a market index. Some are designed to pay regular income, often at rates above traditional bonds, with partial protection against declines down to a set level. Trade-offs: they are complex, depend on the issuing bank's ability to pay, can be hard to sell before maturity, and the protection and income can disappear in a severe decline. They require careful review of terms and costs.

Other income sources. Real estate investment trusts, preferred stock and covered-call strategies also produce cash flow, each with its own risks and tax treatment.

Putting it together. Income-producing investments rarely cover a full spending gap on their own without taking on extra risk. Many plans combine them with planned withdrawals, so the portfolio stays diversified while still providing dependable cash.

This article is general education, not a recommendation of any investment. Suitability depends on your full situation — a good topic to review with your planning team.