Short-term bonds. Consider a diversified portfolio of short-term bonds or, for investors in a high tax bracket, short-term municipal bonds. Short-term bonds pay higher interest rates than money markets or CDs. In addition, they will typically lose very little principal relative to longer-term bonds should interest rates go up.
Fixed annuities. Fixed annuities currently guarantee a minimum return of 2.5 percent to 3.5 percent, and the income is tax-deferred, which makes them even more valuable for taxable investment accounts. It is also important to realize that fixed annuities won't lose principal should interest rates go up.
More from Fixed Income Strategies:
Where the bonds are: The outlook for fixed income
Annuity illustrations aren't always what they seem
Passive investing hums with activity as ETFs evolve
Large U.S. corporations paying dividends. High-quality, large multinational U.S. corporations that have provided consistent increases in dividends for 10 to 20 consecutive years are another avenue to consider. For example, look at the S&P Aristocrats Index or the exchange-traded funds that represent this index. These stocks are very large, and they dominate their markets.
These companies are not going bankrupt. They will be around a long time, and a diversified portfolio paying out 2 percent to 3 percent in dividends annually will go a long way in supplementing the lower income received on fixed-income investments. You will also get long-term growth and can wait a long time for market corrections to recover when your stock portfolio is consistently providing dividends of 2 percent to 3 percent annually.