Best examples of income generation from fixed income investments

Real-world examples of income generation from fixed income investments

Let’s start with the fun part: real money, real yields, real cash flow. Here are several examples of income generation from fixed income investments that investors are actually using in 2024–2025.

Example of income from U.S. Treasury bonds

A classic example of income generation from fixed income investments is the plain-vanilla U.S. Treasury note.

Imagine an investor buys $100,000 of a 5-year U.S. Treasury note with a 4.0% coupon, paying interest twice a year.

• Coupon rate: 4.0% annually
• Payment schedule: Semiannual
• Annual income: $4,000
• Cash per payment: $2,000 every six months

That’s $4,000 a year of government-backed income, often used by retirees who prioritize safety over higher yield. According to the U.S. Treasury, yields on intermediate Treasuries have hovered in the 3–5% range in 2023–2024 as rates reset higher after a decade of ultra-low yields (treasurydirect.gov).

This is one of the cleanest examples of income generation from fixed income investments: simple structure, predictable payments, and repayment of principal at maturity.

Municipal bond income for high earners

For investors in higher tax brackets, tax-exempt municipal bonds are often the best examples of fixed income working smarter, not harder.

Suppose a California investor in the 32% federal tax bracket buys $50,000 of an AA-rated California municipal bond with a 3.25% tax-exempt coupon.

• Coupon rate: 3.25% (federal tax-exempt; often state tax-exempt if in-state)
• Annual income: $1,625
• After-tax equivalent yield: roughly 4.78% (3.25% ÷ (1 − 0.32))

On a taxable basis, that 3.25% muni behaves like a nearly 4.8% bond for that investor. For many high earners, examples of income generation from fixed income investments often center on munis because the tax savings are real, recurring, and quantifiable.

The Municipal Securities Rulemaking Board and FINRA provide data and education on muni markets and tax considerations (msrb.org, finra.org).

Corporate bond ladder for retirement income

Another strong example of income generation from fixed income investments is a corporate bond ladder designed to match near-term cash needs.

Picture a retiree with $300,000 dedicated to fixed income. Instead of buying a single bond fund, they build a 5-year ladder of investment-grade corporate bonds:

• $60,000 in a 1-year bond at 4.8%
• $60,000 in a 2-year bond at 5.0%
• $60,000 in a 3-year bond at 5.1%
• $60,000 in a 4-year bond at 5.2%
• $60,000 in a 5-year bond at 5.3%

Annual income in year one is roughly:

• 1-year bond: $2,880
• 2-year bond: $3,000
• 3-year bond: $3,060
• 4-year bond: $3,120
• 5-year bond: $3,180
• Total: about $15,240 per year

As each bond matures, the principal can be reinvested into a new 5-year bond at current rates. This ladder creates a rolling stream of interest plus scheduled principal repayments. For investors who want predictable cash flow without locking everything into a single maturity date, this is one of the best real examples of income generation from fixed income investments.

Bond ETFs for diversified monthly income

Not everyone wants to pick individual bonds. Exchange-traded funds (ETFs) and mutual funds that hold hundreds or thousands of bonds have become some of the most practical examples of income generation from fixed income investments.

Consider a broad U.S. investment-grade bond ETF with a 30-day SEC yield around 4.5% in 2024. An investor who puts $200,000 into that fund might see:

• Portfolio yield: ~4.5%
• Expected annual income: about $9,000
• Monthly distributions: roughly $750 (before taxes)

Because the fund holds Treasuries, corporates, and mortgage-backed securities, a single investment delivers diversification and a steady distribution stream. The trade-off: the market price of the ETF will fluctuate with interest rates, even though the income stream stays relatively steady.

The SEC provides a clear explanation of bond fund risks and income characteristics (sec.gov).

Inflation-protected income from TIPS

Investors worried about inflation eroding their spending power often look to Treasury Inflation-Protected Securities (TIPS). These are another useful example of income generation from fixed income investments that adapts to prices over time.

Suppose an investor holds $100,000 in a TIPS fund with a 2% real yield. If inflation runs at 3%, the approximate expected total return is 5%, but the income piece looks different from a standard bond:

• Coupon payments are based on an adjusted principal that rises with inflation.
• The cash income may start lower than a comparable nominal bond but grows as the principal is indexed upward.

In practice, TIPS funds tend to distribute a mix of interest and inflation adjustments. For someone living off their portfolio, this can help keep income closer to the rising cost of living, one of the more nuanced examples of income generation from fixed income investments in an inflationary cycle.

Preferred stock as a hybrid income play

Preferred stock sits between bonds and common stock: it usually pays a fixed dividend, but it’s technically equity. For income-focused investors willing to take on more risk than bonds, preferreds are often cited as some of the best examples of higher-yield income generation from fixed income–like investments.

Imagine an investor buys $50,000 of a bank’s preferred shares yielding 6.25%.

• Annual income: $3,125
• Payment schedule: Typically quarterly
• Cash per quarter: About $781

The yield is often higher than investment-grade bonds from the same issuer, but there is more risk: dividends can be suspended, and preferreds are lower in the capital structure than bonds. Still, for investors building a diversified income portfolio, preferreds are a compelling example of income generation from fixed income investments that stretch for higher yield.

Short-term Treasury bills for parking cash

Not every example has to be long-term. In the 2024 rate environment, short-term Treasury bills (T-bills) have become a favorite parking spot for cash.

Say a business owner keeps $250,000 in 6‑month T-bills yielding 5.0%.

• Annualized yield: 5.0%
• 6‑month income: about $6,250
• If rolled twice per year: roughly $12,500 annually, assuming stable rates

This is one of the cleanest examples of income generation from fixed income investments for cash reserves: very low credit risk, short duration, and a meaningful yield compared to traditional savings accounts in many banks.

How fixed income income streams compare to equity dividends

When investors talk about examples of income generation from fixed income investments, they’re usually comparing those cash flows to stock dividends.

Dividend-paying stocks can grow their payouts over time, but they’re not promises. Boards can cut or suspend dividends in a downturn. Bond coupons, by contrast, are contractual obligations. If the issuer doesn’t pay, it’s a default.

In a simple side-by-side:

• A blue-chip dividend stock yielding 3% might raise its dividend 5–8% per year, but the price can swing wildly.
• An investment-grade bond yielding 4.5% pays a fixed coupon, and if held to maturity, the principal is returned (assuming no default), even if the market price fluctuates.

For investors who want to match specific expenses—like retirement withdrawals, tuition, or mortgage payments—the predictability of bond income often wins. That’s why so many real examples of income generation from fixed income investments involve matching cash flows to a calendar of upcoming needs.

2024–2025 trends shaping income from fixed income

The environment in 2024–2025 is very different from the 2010s, and that changes what counts as the best examples of income generation from fixed income investments:

• Higher base yields: After aggressive rate hikes by the Federal Reserve starting in 2022, yields across Treasuries, corporates, and munis are materially higher than they were for most of the last decade. That means investors can earn 4–6% in many high-quality bonds without diving into speculative credit.
• Shorter duration preference: Many investors prefer short- and intermediate-term bonds to avoid big price swings if rates move again. This is why T-bills, 1–5 year Treasuries, and short-duration corporate bond funds are popular.
• Rise of bond ETFs: Low-cost bond ETFs have become go-to vehicles for income, because they trade like stocks but distribute bond interest monthly. These funds are now standard examples of income generation from fixed income investments for both individual and institutional investors.
• More focus on after-tax yield: With higher yields, the tax bite matters more. Tax-aware investors increasingly look at municipal bonds and tax-managed bond funds to maximize after-tax income.

The Federal Reserve and other central banks publish data on interest rates and bond markets, which is worth reviewing if you want to understand the backdrop for these income examples (federalreserve.gov).

Building a portfolio around income generation from fixed income

Looking across these real examples of income generation from fixed income investments, a few design principles show up again and again.

Mix different types of fixed income

Relying on a single bond type is risky. A more resilient income portfolio might include:

• Treasuries for safety and liquidity
• Investment-grade corporates for higher yield
• Municipal bonds for tax-efficient income (if you’re in a higher bracket)
• A modest slice of high-yield or preferreds for extra income, if your risk tolerance allows
• TIPS to protect purchasing power in case inflation resurges

The idea is not to chase the single highest-yielding example of income generation from fixed income investments, but to combine multiple sources so no single risk—credit, duration, inflation, or tax—dominates the portfolio.

Match maturities to your timeline

If you know you’ll need $30,000 a year from your portfolio over the next five years, you can use a ladder of bonds or bond ETFs with staggered maturities to line up principal repayments and interest with those withdrawals. This is exactly how many financial planners structure retirement income.

Shorter maturities give you:

• More flexibility to reinvest at new rates
• Less price sensitivity to interest rate changes

Longer maturities give you:

• Higher yields (usually)
• More exposure to rate risk, but also potential price gains if rates fall

Most of the best examples of income generation from fixed income investments in practice use a blend—anchoring near-term needs in short and intermediate bonds, and using longer bonds more sparingly.

Think in terms of after-tax, after-inflation income

A 5% yield is not the same for everyone. Taxes and inflation can dramatically change how much income you actually get to spend.

• A 5% corporate bond yield might become 3–3.5% after federal and state taxes for a high earner.
• A 3% municipal bond yield might be worth more than 4.5% on a taxable-equivalent basis, depending on your bracket.
• A 4% nominal bond yield in a 3% inflation world is only 1% in real terms.

When you evaluate examples of income generation from fixed income investments, always translate them into after-tax, after-inflation numbers that match your situation. That’s the number that matters for your lifestyle.

Common pitfalls when using fixed income for income

Even with all these attractive examples of income generation from fixed income investments, there are ways to get it wrong.

• Reaching too far for yield: Chasing double-digit yields in junk bonds or exotic products can backfire fast when defaults spike or liquidity dries up.
• Ignoring credit quality: A 1% yield pickup isn’t worth it if you’re stepping down several notches in credit quality without realizing it.
• Forgetting about reinvestment risk: If you buy a 1-year bond at 6% and next year yields are 3%, your income drops unless you change your strategy.
• Treating bond funds like individual bonds: A bond fund doesn’t “mature” the way a single bond does; its price and income will adjust as the manager buys and sells bonds.

The goal is not to find the single highest example of income generation from fixed income investments, but to build an income strategy that can survive different market environments.

FAQ: examples of income generation from fixed income investments

Q: What are some simple examples of income generation from fixed income investments for beginners?
For a beginner, straightforward examples include a U.S. Treasury note paying a fixed coupon twice a year, a high-quality corporate bond held to maturity, or a broad bond ETF that pays monthly distributions. These are easy to understand and give you a clear picture of how much income to expect.

Q: Can you give an example of using fixed income to cover monthly expenses?
Yes. Suppose you need \(2,000 per month from your investments. You might combine \)300,000 in a diversified bond ETF yielding 4.5% (about \(1,125 per month) with \)200,000 in individual corporate bonds yielding 5% (about \(833 per month). Together, that’s roughly \)1,958 per month in interest income before taxes, a practical example of income generation from fixed income investments supporting your budget.

Q: Are bond funds good examples of income generation, or are individual bonds better?
Both can work. Bond funds and ETFs are convenient examples of income generation from fixed income investments because they provide diversification and steady distributions. Individual bonds give you more control over maturities and the option to hold to maturity, which can be helpful if you want to lock in a specific cash flow pattern. Many investors use a mix.

Q: What are examples of lower-risk fixed income options for retirees?
Lower-risk examples include short- to intermediate-term U.S. Treasuries, high-quality municipal bonds (for those in higher tax brackets), and investment-grade corporate bond funds with moderate duration. These typically form the core income engine in retirement-focused portfolios.

Q: How do I know if a fixed income investment’s yield is attractive?
Compare the yield to: current Treasury yields of similar maturity, your tax bracket (to calculate after-tax yield), and inflation expectations. If a bond pays only slightly more than a Treasury but carries much more credit risk, it might not be worth it. Evaluating yield in context is key when assessing examples of income generation from fixed income investments.

Fixed income isn’t glamorous, but it’s the backbone of many real-world portfolios, especially when the goal is to turn savings into a reliable paycheck. Use these examples of income generation from fixed income investments as templates, then adjust the mix, maturities, and risk levels until the cash flow matches your life—not the other way around.