From Bond Pain to Retirement Income Gains
How 5% yields are changing the investing playbook
You can’t always get what you want, But if you try sometime you’ll find, You get what you need – Rolling Stones
Investors spent years wishing safe bonds paid 5% again. As the Rolling Stones reminded us, you can’t always get what you want, at least not without accepting what comes with it. Higher yields arrived alongside inflation, rising borrowing costs and one of the most painful bond resets in decades.
For most of the past 15 years, retirees had an unusual problem: safe money barely paid anything.
Following the financial crisis and again during the pandemic, interest rates hovered near historic lows. The 10-year Treasury fell below 1% in 2020. CD’s and Savings accounts paid next to nothing, 30 year mortgage rates were near 2.8%, and high-quality bonds provided diversification but not much of a paycheck.
Wall Street even had an acronym for it: TINA, or There Is No Alternative. With cash near zero and bonds yielding 1% or 2%, investors looking for retirement income were pushed farther out on the risk curve, whether into stocks, lower-quality credit, real estate or alternative investments.
Fast-forward to 2026 and TINA may finally be ready for retirement herself.
The 10-year Treasury briefly reached +5.34% this past week, its highest level since 2002, while the 30-year approached +5.7%. Even Friday’s weaker jobs report couldn’t keep yields down for long, with the 10-year finishing around 5.26%. Investors appear increasingly concerned that inflation, enormous government borrowing, elevated energy prices and strong demand for capital may keep interest rates higher for longer. (source: FRED)
That has been painful for borrowers and existing bondholders. But there is another side to this story. For retirees, higher rates can also mean higher income. And after more than a decade of retirement plans built around historically low yields, that doesn’t just change what bonds pay. It can change the math of retirement itself.
Is the 60/40 Back From the Dead?
Ooh, a storm is threatening, My very life today, If I don’t get some shelter, Ooh yeah, I’m gonna fade away -Rolling Stones
For years, declaring the traditional 60/40 portfolio dead became something of a Wall Street pastime. The criticism wasn’t entirely misplaced. Stocks soared while bonds struggled, leaving many investors wondering why they still owned the supposedly boring 40% of their portfolio.
Now the math is changing. With high-quality bonds yielding around 5%, the 40% may finally be able to do its job again: generate meaningful income, provide diversification and potentially offer some upside if interest rates eventually decline.
There is an irony here. After watching technology stocks and the Magnificent Seven race ahead while bonds suffered, investors may be tempted to abandon fixed income and put even more money into yesterday’s winners. But if long-term rates are ultimately closer to a peak than a floor, selling bonds after much of the damage has already occurred could mean walking away just as their forward-looking opportunity has improved.
The Bond Market Didn’t Just Break. It Repriced.
For roughly four decades beginning in the early 1980s, declining interest rates created one of the greatest tailwinds bond investors had ever seen. The 10-year Treasury yield fell from more than 15% in 1981 to barely 0.5% during the pandemic. As yields fell, bond prices generally rose. (see chart)
Then everything went into reverse.
Inflation surged, the Federal Reserve raised rates aggressively and bond prices fell. Investors who thought of the 40% bond side of a traditional 60/40 portfolio as the quiet half suddenly discovered that bonds can make plenty of noise. For a while, declaring the 60/40 portfolio “dead” became something of a Wall Street pastime.
The past five years have been particularly frustrating. Stocks have powered through sticky inflation, rising rates, expensive crude, geopolitical conflicts, mounting federal debt and a multitrillion-dollar AI infrastructure boom. Meanwhile, many traditional bond investments have struggled just to get back above water.
Longer-duration Treasurys were hit particularly hard. TLT, the widely followed ETF tracking Treasurys with maturities of 20 years or more, has lost roughly 46% on a total-return basis over the past five years. (see chart below) That painful experience is one reason we have emphasized shorter-duration, high-quality bonds, municipal bonds where appropriate, TIPS and diversified sources of portfolio income rather than treating fixed income as one big bucket.
But markets have a funny way of turning yesterday’s pain into tomorrow’s opportunity. With the 10-year now above 5%, yields have climbed back to levels last seen around the turn of the century. In roughly six years, the bond market has retraced about a quarter-century of declining yields.
That doesn’t mean we’re headed back to the 15% yields of the Volcker era. But it raises a bigger question.
Was 2020 simply the bottom in rates, or the end of a 40-year investment regime?
From Bond Pain to Retirement Income
Here is where the story gets considerably more interesting for retirees.
The same rise in rates that punished yesterday’s bondholder has reset the opportunity for investors putting money to work today. Treasury yields that hovered near 1% in 2020 are now around 5%, potentially turning roughly $10,000 of annual interest on $1 million into more than $50,000.
Same $1 million. Very different retirement-income math.
Morningstar demonstrated the point several years ago with a retirement-income experiment. Using a 50/50 stock-bond portfolio and a 30-year retirement, its model produced a 2.9% starting withdrawal rate when long-term Treasury yields were around 1%. Using a 4.95% Treasury yield pushed the modeled rate to roughly 4%.
On a $2 million retirement portfolio, that difference represented about $22,000 of additional first-year withdrawals under the model.
Morningstar’s latest research puts its base-case starting withdrawal rate at 3.9% for a 30-year retirement. The exact number isn’t really the point. Bond yields, inflation, stock valuations, longevity and asset allocation all affect how much income a retirement portfolio can reasonably support.
That is why a retirement plan built when safe bonds paid 1% or 2% deserves another look when high-quality fixed income is paying around 5%.
How Much Risk Do You Still Need?
This may be the most important retirement-planning question in the entire discussion.
Here in South Florida, steakhouse seminars seem to pop up almost monthly, promising a free dinner and a new mousetrap for earning 8% to 10% while hedging inflation and market volatility. Most investors know there is no such thing as a free lunch, yet plenty still show up to hear pitches for increasingly complex, Wild West investments.
But complexity doesn’t guarantee better results. And with high-quality bonds now paying around 5%, investors may not need to reach nearly as far for income as they did in the zero-rate world.
Sometimes the better answer is also the less exciting one: own a diversified portfolio, control costs and taxes, stay invested, and make sure the amount of risk you’re taking actually matches the return you need to reach your goals.
Portfolio Design for Today’s Markets
If high-quality bonds can now generate something close to 5%, should a retirement portfolio designed when they yielded 1% or 2% look exactly the same?
Maybe. Maybe not.
There is no magic allocation and certainly no free lunch. A 5% nominal yield isn’t a 5% return after inflation. Someone retiring at 60 may need a portfolio to provide income and growth for another 30 years or longer. Inflation at 4% cuts purchasing power in half much faster than inflation at 2%.
That’s why stocks still matter.
Moving an entire retirement portfolio into bonds because yields suddenly look attractive could solve today’s income problem while creating tomorrow’s longevity problem. Equities remain an important tool for long-term growth and maintaining purchasing power.
What higher bond yields provide is flexibility. More retirement spending may potentially be funded from interest and income rather than selling investments. That can reduce pressure to sell stocks during a bear market and help manage sequence-of-returns risk, particularly during the critical early years of retirement.
This isn’t really a stocks-versus-bonds debate. It’s about giving each part of the portfolio a job: growth, income, liquidity and inflation protection. The better the income available from high-quality bonds, the less pressure there may be on every other part of the portfolio to swing for the fences.
Why Haven’t Higher Rates Broken Stocks?
There is an interesting wrinkle in all of this. You might expect Treasury yields above 5% to be kryptonite for stocks.
So far, they haven’t been.
Stocks have remained remarkably resilient even while long-term yields have surged to their highest levels since 2002. The S&P 500 has continued to advance while the 20-year Treasury yield has moved well above 5%. (MarketWatch)
Part of the explanation may be that higher rates aren’t occurring in a vacuum. Economic growth and corporate earnings have remained resilient, while enormous investment in AI, data centers, power generation and infrastructure continues to support economic activity.
But 5% rates still matter. They change the hurdle rate.
When investors can earn roughly 5% from high-quality bonds, stocks have to work harder to justify their valuations. Companies with earnings, cash flow and exposure to durable economic growth may hold up considerably better than businesses whose economics depended on nearly free money.
Higher rates don’t necessarily mean lower stock prices. But they may change which stocks lead and how much investors are willing to pay for future growth.
Getting Paid to Wait
Nobody knows whether the 10-year Treasury peaks around 5%, 5.5%, 6% or somewhere higher. And today’s yields didn’t arrive because the world suddenly became tranquil. Persistent inflation, enormous government borrowing and greater uncertainty may all be part of the reason investors are demanding more yield.
That is why we wouldn’t make an all-or-nothing bet on long-duration bonds simply because yields look attractive.
If rates fall, intermediate-term bonds could benefit from price appreciation. If rates remain elevated, investors continue collecting meaningful income. And if rates rise further, today’s higher starting yields provide more of a cushion against additional price declines than investors had when bonds yielded 1% or 2%.
You don’t need to perfectly call the top in rates to find opportunity in bonds. At 5%, getting paid to wait has become a strategy again.
The Bottom Line: A 5% bond yield looks considerably more attractive than 1%, but the headline number doesn’t tell the whole story. Inflation ultimately determines how much of that income investors keep in purchasing-power terms. And there is no reason to assume we’ve seen the peak in rates.
For retirees, however, the bigger story isn’t whether the 10-year peaks at 5.3%, 5.5% or 6%. It’s that after years of earning next to nothing, high-quality bonds can once again provide meaningful income and diversification within a broader retirement portfolio.
That doesn’t mean abandoning stocks. A retirement that may last 20 or 30 years still requires growth to help keep ahead of inflation. It means retirees finally have more choices about where their income comes from and how much market risk they need to take to generate it.
If your retirement plan was built when safe bonds paid 1% or 2%, it may be time to run the numbers again.
After years of higher rates creating mostly pain, retirees may finally be getting something back.
A raise.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.com.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This material was prepared with the assistance of AI. All content has been reviewed, edited, and approved by Ulin & Co Wealth Management prior to use.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
