For about a decade and a half, income investors were basically living in a wasteland. You parked money in a CD and earned 0.2%. You bought a 10-Year Treasury and got paid around 1.5% to tie your money up for a decade. Bonds were so boring that the financial media stopped talking about them. Income investing got written off as something your grandparents did.

Then 2022 happened. Holy hell, did the landscape change.

The Federal Reserve raised rates eleven times in roughly fourteen months — the most aggressive tightening cycle in four decades. Suddenly you could get 5% in a money market account. Short-term Treasuries were yielding more than the stock market dividend. CDs that used to feel like a punishment for being too conservative started looking pretty reasonable.

Which created a new problem: everyone started piling in at exactly the wrong time, for exactly the wrong reasons, without a plan for what comes next.

That’s what I want to talk about here. Not whether interest rates are going up or down — nobody knows that for certain, and anyone who tells you otherwise is selling something. What I want to talk about is how to think about income investing when rates are elevated: what works, what doesn’t, and where most people leave money on the table.

First, Understand What “Income Investing” Actually Means in This Environment

When most people say they want to “invest for income,” they mean they want their portfolio to throw off cash without having to sell anything. Dividends. Interest payments. Distributions. The goal is a paycheck that doesn’t require liquidating shares every month.

That’s the right goal. But the mistake a lot of people make is treating income investing like a grocery list — pick the thing with the highest yield and call it a day. Highest yield. Done.

Here’s the rub: yield and safety are not the same thing. A 9% yield on a corporate bond is not better than a 5% yield on a Treasury. It’s just riskier. And when you’re in the Red Zone — those last three to five years before retirement — chasing yield without understanding the risk underneath it is one of the more reliable ways to wreck your plan.

What Actually Works When Rates Are High

Let’s talk about the tools that tend to make sense in a high-rate environment, and what to watch for with each one.

Short-duration Treasuries and I-Bonds. When rates are elevated, short-duration government paper is one of the cleaner income plays available. You’re not taking credit risk. You’re not taking duration risk if you stay short. Three-month, six-month, and one-year T-bills have offered rates in the 4–5% range in recent years — returns that would have seemed outlandish in 2019. I-Bonds, which are inflation-indexed savings bonds issued directly through the Treasury, can be worth a look during inflationary periods, though they come with purchase limits and a one-year lockup.

The downside: this is a short game. You’re essentially betting that rates stay elevated long enough to make the rollover strategy work. If the Fed pivots hard and you’re sitting in a 90-day T-bill ladder, you’re going to be reinvesting at much lower rates six months from now.

CDs from FDIC-insured banks. Certificates of Deposit are back in a way they haven’t been in a long time. Some institutions have offered 12-month CDs north of 5% during recent cycles. FDIC insurance covers up to $250,000 per depositor per institution, so they’re about as safe as it gets on the credit side.

The thing most people miss: locking into a multi-year CD when you expect rates to fall is fine strategy. Locking into one when you think rates might keep rising is not. Pay attention to where you are in the rate cycle before committing to a 3–5 year term.

Dividend-paying stocks and dividend growth funds. This is where it gets more interesting, and more complicated. A high-quality dividend growth stock — a company with 20–30 consecutive years of dividend increases — isn’t just an income vehicle. It’s an income vehicle with a built-in inflation hedge, because the dividend grows over time.

The catch is that dividend stocks are still stocks. They go down in bear markets. They can cut dividends when times get tough. For someone in the Red Zone, the sequence of returns risk is real: if your dividend portfolio drops 30% in the first two years of retirement while you’re pulling income from it, the math gets very ugly, very fast.

REITs (Real Estate Investment Trusts). REITs are required by law to distribute at least 90% of their taxable income to shareholders, which makes them natural income generators. But they’re also sensitive to interest rates in a way most people don’t fully appreciate. When rates rise, REIT prices tend to fall, both because their borrowing costs go up and because their income looks less attractive relative to “risk-free” alternatives. We saw this play out dramatically in 2022.

Traded REITs — the ones you can buy and sell on an exchange like a stock — can make sense as part of a diversified income strategy when you understand the rate sensitivity. Non-traded REITs are a different conversation and deserve a lot more scrutiny before you commit capital.

The Ladder Strategy: How to Not Get Caught Flat-Footed

One of the most practical approaches for income investors in a high-rate environment is building a bond or CD ladder. The idea is simple: instead of locking everything into one maturity, you spread your fixed-income across multiple maturities — say, one year, two years, three years, four years, and five years.

As each rung matures, you reinvest at whatever the current rate is. If rates have gone up, great — you’re capturing the higher yield. If rates have fallen, at least you only have one rung rolling over at the lower rate instead of your entire position.

The ladder doesn’t require you to guess where rates are going. It just keeps you from being completely exposed to one outcome.

What Most People Miss: The Tax Side

Income investing sounds clean until you actually look at your tax return. Interest income from CDs and most bonds is taxed as ordinary income, which for executives in higher brackets can mean a significant haircut. Qualified dividends are taxed at capital gains rates, which are more favorable. Municipal bond interest is often exempt from federal income tax and, in California, from state income tax if you buy California munis — which matters a lot when you’re in a high-income-tax state.

I’m not saying to make investment decisions based entirely on taxes. I am saying that a 4.5% yield that gets taxed at 37% federal plus 13.3% California state leaves you with something meaningfully less than 4.5%. Run the after-tax numbers before you get excited about a rate.

The Bigger Picture for Red Zone Investors

If you’re 58, 60, 62 — somewhere in that window where retirement is close but not quite here — the income conversation is really a risk conversation.

The question isn’t just “How do I get yield?” It’s “How do I structure my portfolio so that income needs are met without forcing me to sell equities at the wrong time?” That’s a different question, and it requires thinking about more than just current yields.

It means thinking about which accounts your income will come from and in what order. It means understanding how your Social Security timing interacts with your portfolio withdrawals. It means knowing how much income you actually need and how much is discretionary, so you have flexibility in a down market.

High rates are genuinely good news for income investors — for the first time in a long time, you can build a meaningful income stream from relatively conservative instruments. But the window doesn’t stay open forever, and the strategy that works at 5% rates is not the same strategy that works at 3% rates.

If you’re a California executive trying to figure out how to structure your income in retirement, I’d be happy to talk through what makes sense given your specific situation. Every number is different. The right answer for someone with $3M in a 401k and a pension is not the same as the right answer for someone with $1.5M in taxable accounts and no other income stream.

Schedule a conversation at www.quiverfinancial.com or call us at 949-492-6900.

Securities offered through Registered Representatives. Advisory services through Quiver Financial Holdings, LLC. This blog is for educational purposes only and should not be construed as personalized investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.