Retirees can take these steps to shore up income as yields rise and some dividend-paying sectors slip
A runup in Treasury yields lately has retirees facing price declines from their bonds as well as in some of their favorite dividend-paying sectors. In the past month, the real estate and financial sectors have fallen more than 2%, while utilities are hanging in with a 1% rise and health care has risen 4%. The Vanguard High Dividend Yield Index (VYM) has fallen 1% in the past month, too. In the same period, the 10-year Treasury yield has topped 5.3%, the highest level in 24 years. The benchmark yield cooled on Thursday, trading near 5.085% as investors bid up safety assets. Still, the recent bout of volatility is enough to worry investors who are drawing down a stream of income from their retirement savings. “With fluctuations in the bond markets, I get calls from clients I don’t normally hear from,” said Jessica Ness, CFP and financial advisor at CJM Wealth Advisers in Falls Church, Virginia. “Any time the bond market is in turmoil, it raises clients’ eyebrows,” Ness added. “But it’s been wonderful to say, ‘no we don’t need to change your strategy’ or ‘we don’t need to adjust because your diversified portfolios have held up.'” You may not need to throw out your playbook if you’re drawing down income in retirement and facing market tumult, but a few steps can help you bolster your plan. Set aside sufficient cash The best way to avoid eroding your savings during a big sell-off is to have enough cash in reserves to manage your expenses, and required withdrawals, for a six to 12-month period. Today’s higher yields can also reward you with interest income from your cash without subjecting you to excessive interest rate risk. Fixed income assets with short maturities have less price sensitivity to interest rate swings; that’s known as duration. The Crane 100 Money Fund Index has an annualized 7-day yield of 3.7%. Money market funds promise stability and offer interest. The Vanguard Federal Money Market Fund (VMFXX) yields 3.81% and has an expense ratio of 0.11%, while the Fidelity Money Market Fund (SPRXX) yields 3.57% and carries an expense ratio of 0.42%. For investors willing to squeeze a little more yield without ramping up duration, short-term bond funds might do the trick. The iShares Ultra Short Duration Bond Active ETF (ICSH) has an expense ratio of 0.08% and a 30-day SEC yield of 4.38%, while the Vanguard Ultra-Short Bond ETF (VUSB) has an expense ratio of 0.1% and a 30-day SEC yield of 4.78%. “We always believe in the prudence of having some cash tiering, some short-term liquidity buckets so you own an allocation that will be stable, defensive and liquid, and that you can draw down from in the most volatile markets,” said Rebecca Venter, senior fixed income client portfolio manager at Vanguard. “The short-term bond space provides meaningful yield with less interest rate risk so bond portfolios can be more stable through interest rate volatility,” she added. Rebalance your portfolio Don’t be afraid to add back to some of your asset classes that haven’t been doing well and part ways with some of your winners. Rebalancing your portfolio helps you prevent overconcentration in positions that have grown too large, keeping your risk profile in check. “Rebalancing is where the magic happens, that is where we see the opportunities,” said Ness. “For us, we’re trimming large cap growth; they’re the high flyer.” She’s also been adding to some underperforming asset classes as of late, including small and mid-cap stocks. The Russell 2000 , up more than 10% in 2026, has lagged the market lately and fallen more than 7% in the past three months. The State Street SPDR S & P Midcap 400 (MDY) is off almost 4% in the past three months. Sell losers selectively If you’re holding bonds in your taxable brokerage account, the latest runup in yields may have given you an opportunity to sell a few losing positions to offset capital gains realized elsewhere in your portfolio. If your losses exceed capital gains, you can apply as much as $3,000 of the losses to reduce your ordinary income. You can also carry over any unused losses into future years. But investors need to steer clear of violating the wash sale rule. That means if you sell an asset to realize a loss and then buy a “substantially identical” replacement within 30 days before or after the transaction, the IRS may stop you from taking the loss. “This is a great time for [tax loss harvesting on bonds], and I think for clients who are in higher tax brackets, the taxable equivalent yield on municipal bonds is really attractive,” said Rafia Hasan, CFP and chief investment officer at Perigon Wealth Management in Chicago. She recommends shying away from bonds with very long duration, instead preferring intermediate duration – somewhere in the range of five to seven years. Hasan noted that while it’s a tough market for fixed income, yield is now making up a larger part of total bond returns. “On a go-forward basis, it’s a positive for people who are savers and bond investors,” she said.
