Before the early 1990s, experts generally considered 5% to be a safe amount for retirees to withdraw from their investments each year in order to provide a steady income stream, whilst also maintaining the current level of their savings.
However, in 1994, a financial adviser called William Bengen’s study of historical US market returns, including the tough periods of the 1930s and 1970s, led to a more cautious recommendation: the 4% rule.
The 4% rule is not a silver bullet – far from it: there are too many variables for each individual. But it is useful as a starting point if you are indeed investing for income and are using that money to help pay the bills.
Fast forward to today, and with cash rates at 4.5%, income investors face a different challenge — why take investment risk if cash offers similar returns? But with inflation still above central bank targets in many regions, simply holding cash may not protect investors capital over the long term.
The good news is that opportunities in fixed income and equity income funds are much improved. Yields on high-quality bonds are now comfortably above 5% in some areas, while equity income funds targeting dividend-paying companies also offer attractive levels of income.
Investors looking to beat cash and generate sustainable long-term income can once again aim for that 5% target – by blending bonds, equities, and other income-producing assets in a well-diversified portfolio. Although this yield is not guaranteed and can fluctuate, the higher starting point may be of comfort. Here we’ve highlighted a selection of funds, across asset classes, that currently yield more than 5%.
At the time of writing, the Aegon High Yield Bond fund had an impressive 7.63% yield*. This is an unconstrained, high-conviction, global high-yield bond fund. The fund’s flexible mandate differentiates itself from its peers and allows the managers to maximise their opportunity set by avoiding unwanted constraints imposed by a benchmark.
M&G Emerging Markets Bond is also breaking the 7% mark at 7.36% yield*. Manager Claudia Calich is an industry veteran and extremely knowledgeable about this very complex asset class — her track record speaks for itself. The strategy is very flexible, meaning she can find the best opportunities available on both an income and capital growth basis. The fund may be suitable for investors who want exposure to emerging market bonds, as well as those who want a professional to decide the underlying asset allocation for them.
Our final fixed income fund worth mentioning is Premier Milton Strategic Monthly Income Bond, with a yield of 5.67%*. The fund aims to provide investors with a steady monthly income while minimising volatility and providing a better risk-adjusted income compared to both bond funds and equity income options. It may appeal to investors seeking a well-diversified and regular source of income.
For investors looking for income outside of the fixed income space, we’ve highlighted three options, all deriving their income from various sectors.
First is the VT Gravis UK Infrastructure Income fund. With a current yield of 6.47%*, this is a unique fund that invests in a combination of UK-listed investment trusts, direct equities and bonds. The underlying investments include assets ranging from renewable energy to GP surgeries. The fund may be of particular interest to income investors, as it offers an interesting alternative to the standard equity income or bond funds.
Next we would mention the BlackRock World Mining Trust, which offers exposure to mining and metals companies globally. With a current yield of 5.73%*, the trust offers an attractive dividend via added diversification.
The TIME:Commercial Long Income fund aims to provide a secure and stable investment return primarily through acquiring commercial freehold ground rents and commercial freehold property, which benefit from long leases. The fund has a current yield of 5.51%*.
*Source: FE Analytics, at 4 March 2025
