7 Best Income Investments for 2026 | Investing

In the years when you’re working and stashing away money in a 401(k), you’re almost certainly watching account growth rather than reallocating for income.

That changes in retirement, when those savings now have to replace your income from work, and you want to understand how much you can withdraw without running out of money.

Even retirees who have enough assets that depleting their principal isn’t a real worry want their portfolios to generate steady income. That way they can cover spending without selling investments in a down market, while leaving the principal intact for heirs or charitable contributions.

The goals are similar. Both wealthy retirees and those who are less rich want income they can count on from money that holds its value.

Income-producing investments come with a few considerations of their own, says Derrick Alexander, founder of Greater Works Wealth in Tulsa, Oklahoma.

Those include protection of principal, which helps produce the income, and consistent income payouts. “For retirees or young people looking at investing in this style, these two points are pivotal,” Alexander says.

Here are seven types of investments that retirees and pre-retirees often use to generate income from their portfolios:

Investors often hear stocks touted as a mechanism for staying ahead of inflation. That’s true, but stocks with increasing dividends serve a different role in a portfolio.

Their bigger contribution may be stability rather than inflation protection, says Mary Masters, co-owner of Masters Tax & Financial Planning in Statesville, North Carolina.

“A dividend increase is a capital allocation choice, not a hedge mechanism,” she says. “What actually protects against inflation is earnings growth; the raised payout is just the visible byproduct.”

The real value, she adds, is behavioral.

“A steady dividend keeps retirees from panic-selling in a downturn, even though selling a few shares would be economically equivalent, and often more tax-efficient, in a taxable account,” she says.

When evaluating dividend growers, Masters looks for companies that can afford the raises. “I favor growers with strong payout ratios and free cash flow coverage over the highest current yield,” she says. “A stretched payout is a warning sign, not a bargain.”

After years of lackluster yields, bonds are paying retirees again. The 10-year Treasury yield is above 5% as of Sept. 24, about twice what it paid for much of the 2010s.

High-quality corporate bonds are now paying about 5.7%. Those corporate bonds are known as investment grade, meaning the major credit rating agencies, such as Moody’s Ratings, S&P Global and Fitch Ratings, deem the issuer to have a relatively low risk of default.

Those ratings don’t promise that a bond’s price will hold up, however, says Marcel Miu, a chartered financial analyst and certified financial planner (CFP) who’s the founder of Simplify Wealth Planning in Austin, Texas. “The highest-yielding asset is seldom the most useful first dollar in retirement,” he says. “I think of a diversified pool of high-quality bonds as the first line of defense.”

In some retirement income portfolios, he adds, the job for these bonds is to cover scheduled spending, allowing the rest of the portfolio time to recover after a market decline.

That makes these bonds more useful for defined spending dates, rather than as a standalone paycheck, Miu notes. A bond ladder is an example of applying that principle.

Treasury inflation-protected securities, or TIPS, are Treasury bonds with inflation protection written into the contract. Unlike regular Treasurys, their principal rises and falls along with the consumer price index. Interest is paid twice yearly at a fixed rate on that adjusted principal. At maturity, investors receive the greater of the inflation-adjusted principal or the original amount.

That makes TIPS a natural fit for many retirees worried about inflation eating into their spending. The alternative is regular Treasurys, known as nominal bonds, which pay a fixed rate with no inflation adjustment.

“Most investors overthink the nominal-versus-TIPS choice,” Masters says.

One complication is taxes. “TIPS are the only contractual inflation hedge, but the inflation adjustment is taxed annually as phantom income before you ever receive it,” Masters says. That means paying tax each year on principal increases you won’t collect until maturity or until you sell. TIPS are often a poor fit for taxable accounts.

Masters suggests a simpler route for many retirees: “Absent a specific inflation-linked liability, a plain intermediate Treasury ladder in a tax-deferred account often does the job with less complexity.”

Municipal bonds are issued by states, cities and other local governments to pay for schools, roads, hospitals and other public projects. Their interest is generally exempt from federal income tax, and often from state tax for residents of the issuing state.

That tax break makes munis most valuable to investors in higher brackets. A 10-year AAA-rated muni currently yields about 4%. For someone in the top 37% federal bracket, that’s equal to a taxable yield of about 6.4%, well above what comparable Treasurys or high-quality corporate bonds pay.

The math changes for lower brackets. For an investor in the 24% bracket, the same 4% muni is equal to about 5.3% taxable. That’s less than the 5.7% that investment-grade corporate bonds are paying.

That said, investors need to understand what they’re buying. “Tax-exempt interest is not the same as risk-free income,” Miu says.

Investors should know what backs the bond. General-obligation bonds rely on the issuer’s taxing power. Revenue bonds depend on income from a specific project, such as a toll road or hospital. Miu notes that some revenue bonds are non-recourse, meaning the issuer may not have to make bondholders whole if that revenue dries up.

Munis can make sense in a taxable account, Miu says, but “the comparison should be based on after-tax cash flow rather than the label ‘tax-free.'”

Annuities have their critics, often over fees and complexity, but they can guarantee income for life, backed by an insurance company. Higher interest rates have also made that income more generous.

For example, a 65-year-old man who puts $100,000 into an immediate annuity could receive about $625 a month for life, according to data from Annuity.org. A woman the same age would get about $590, because women tend to live longer.

That $625 a month adds up to $7,500 a year, a 7.5% payout rate. That isn’t the same as a 7.5% yield. With a bond, you collect interest and get your principal back at maturity. With an annuity, part of each payment is your own money being returned to you.

Retirees who want guaranteed income that starts later often weigh two options. One is a deferred income annuity (DIA): Pay a lump sum now, and the insurer starts sending checks at a date you pick, such as age 75.

The other option is a fixed index or variable annuity with a lifetime income rider. That’s an add-on, usually for a fee, that guarantees you can withdraw a set amount every year for life.

Unlike with a DIA, you still have an account balance. You can tap it in an emergency or leave it to heirs, though extra withdrawals usually reduce your future income.

“A DIA can make more sense if the income payout is more than what is offered in a rider,” says Tracy Lownsberry, safe money analyst at Up North Retirement in Petoskey, Michigan.

A DIA also has a tax benefit called the exclusion ratio if nonqualified money is used, whereas most riders don’t. Nonqualified money is savings outside individual retirement accounts, 401(k)s and similar retirement plans. With the exclusion ratio, part of each DIA payment is tax-free until you’ve recovered what you paid in.

“The downside is that it’s a decision that isn’t revocable in most cases,” Lownsberry says.

A common mistake, Lownsberry says, is not realizing that lifetime income (through an annuity, for example) is usually best funded with money from traditional IRAs and 401(k)s. Withdrawals from those accounts are taxed as ordinary income anyway. Using that money for lifetime income lets Roth accounts grow tax-free, while taxable accounts benefit from lower long-term capital gains rates.

As with most retirement income decisions, advisors take different approaches to funding annuities, with many urging clients to avoid them altogether. The right mix depends on factors such as your tax bracket, your other income, risk tolerance and plans for your heirs.

REITs own income-producing properties such as apartments, warehouses, hospitals and data centers. They’re required by law to pay out at least 90% of their taxable income to shareholders, which makes them a natural source of income.

Their dividends tend to be well above those of the broader stock market. For example, the FTSE Nareit All Equity REITs Index yielded 3.68% at the end of August, compared with 1.02% for the S&P 500. That’s according to the National Association of Real Estate Investment Trusts, or Nareit, the trade group for the REIT industry.

REITs have rebounded this year, returning 14.5% through August, ahead of the broader U.S. stock market’s return of 13.5%.

Data center REITs are among this year’s leaders, up 33% through August. Healthcare REITs, which include senior housing, were the top-performing real estate property sector in 2025, according to Nareit.

Because REITs often borrow to buy property and compete with bonds for income investors, they tend to do better when interest rates fall.

“REITs can provide both income and exposure to real estate without requiring someone to own and manage individual properties,” says Brett Hina, managing partner and private wealth advisor at Cornerstone Private Wealth in Northfield, New Jersey.

“They can also provide diversification, but investors need to remember that REITs are still market investments and can be volatile,” he adds. “They can also be sensitive to interest rates and economic conditions.”

Taxes are another consideration. Most REIT dividends are taxed as ordinary income rather than at the lower rate for qualified dividends.

“From a tax standpoint, the distributions can make tax-deferred accounts worth considering, depending on the investor’s individual circumstances,” Hina says.

Covered-call ETFs hold a basket of stocks and sell call options on them, which gives other investors the right to buy those stocks at a set price. The fund collects a fee, called a premium, for each option it sells, and passes that money along to shareholders as income. So the distributions are a mix of stock dividends and option income.

Those distributions can be eye-popping. The JPMorgan Equity Premium Income ETF (ticker: JEPI) had a 12-month distribution yield of about 8% as of July 31, and the Global X Nasdaq 100 Covered Call ETF (QYLD) had about a 12% yield as of late September.

Most covered-call ETFs pay monthly. The option income can boost returns when stocks are flat and soften losses when they fall, so these funds tend to show smaller price swings than the stocks they hold.

“Covered-call ETFs can produce attractive distributions, but investors shouldn’t confuse a high distribution rate with a high total return,” Hina says.

“The option premium creates income, but selling calls also means giving up some upside when the underlying stocks rise significantly,” he adds.

The numbers show that trade-off. Over the 10 years through this past July, QYLD returned about 147% including distributions. Meanwhile, the Invesco QQQ Trust (QQQ), which tracks the same Nasdaq-100 stocks without selling options, returned about 512%.

The income isn’t fixed, either. QYLD’s monthly payouts have fallen about 24% since 2021, and part of what some of these funds distribute is a return of investors’ own money. Fees also tend to run higher than on plain index funds.

“They may make sense for an investor who prioritizes current cash flow, but I would be cautious about making them the core of a long-term equity portfolio,” Hina says.