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How the Ultra-Rich Use Municipal Bonds in Retirement

Fact checked by Suzanne KvilhaugYaroslav Astakhov / Getty ImagesFor the ultra-wealthy, municipal bonds aren't just about earning interest. They're a way to lock in tax-free income, cover essential expenses, and free up the rest of their portfolio for higher-growth investments.But even though muni bonds may offer stable income, they aren't a perfect fit for every retiree, and they come with risks that are easy to overlook.Key TakeawaysMunicipal bonds offer steady, often tax-free income, but can come with hidden risks like liquidity issues and sometimes even unexpected taxes.Wealthy investors often use muni bonds to cover basic living expenses while investing aggressively elsewhere to build more wealth.Municipal bonds are best seen as one tool among many—not a complete retirement plan on their own.Why the Wealthy Turn to Municipal BondsOne major reason municipal bonds are popular with wealthy retirees? Taxes. "Municipal bonds can provide stable, high-quality, tax-free income," says Noah Damsky, founder of California-based Marina Wealth Advisors, noting that they're federally tax-free, but only occasionally state tax-free.For example, munis may be exempt from state and local taxes if you live in the state where the bond is issued.Reducing taxable income can make a huge difference for those in higher brackets, making munis a smart way to protect wealth without giving more away to taxes.Plus, the relatively stable nature of many muni bonds—especially general obligation bonds backed by a government taxing authority (instead of revenue from a given project)—makes them an attractive way to fund day-to-day living expenses in retirement.Risks and Common Pitfalls to AvoidDespite their reputation for safety, municipal bonds aren’t foolproof. "While they're often high quality, they're not without risk," Damsky cautions. "They can carry a substantial amount of interest rate risk and some credit risk."Liquidity is another concern many investors miss. "They can be hard to sell at a good price in big blocks, especially if the market is stressed," Damsky says.What's more, buying the wrong type of muni can even trigger an unexpected tax bill—a surprise many retirees aren't prepared for.For example, if you buy a private activity bond, and your income is high enough, the interest might be subject to the alternative minimum tax (AMT).If you’re looking for additional safe options for cash management, you also might want to explore high-yield savings accounts for flexible, FDIC-insured savings.Before buying municipal bonds, find out if they are subject to the alternative minimum tax (AMT).Why Home-State Bonds Aren’t Always BestMany high-net-worth investors buy municipal bonds issued only in their home state to avoid paying state income taxes on interest earned, noted Damsky.But concentrating too heavily can backfire. "While these bonds can be high quality, concentration in one particular state is not optimal," he said.Economic or political problems in one state could hit your portfolio harder than you expect. Diversification still matters—even for bonds that seem safe.How the Ultra-Wealthy Structure Their PortfoliosFor the ultra-rich, muni bonds aren’t the whole game plan. They're often part of a bigger strategy to create a growth and income portfolio that relies on assets like alternatives too."I find that the ultra-wealthy like to barbell their portfolios," Damsky explains. "They want to have their safe money in high-quality fixed income, and have their assets beyond living expenses in high-growth investments such as private equity, private infrastructure, and venture capital."Once they feel confident that they have secured their lifestyle with conservative investments, they turn to high-growth investments to continue to build generational wealth, he adds.This approach effectively gives them a stable income while they pursue long-term growth.When Munis Might Not Make SenseIf you’re trying to build wealth aggressively in retirement—not just to preserve it—relying heavily on munis might not be the best move."Municipal bonds can be great for sustaining existing wealth, but they are unlikely to compound wealth over the long term," Damsky says.That's because, as fixed-income securities, they offer income, not capital appreciation.Munis can be a powerful investment tool—but like any tool, they’re only right when they fit the job you’re trying to accomplish.The Bottom LineThe ultra-wealthy use municipal bonds to create a reliable foundation of generally tax-free income, covering their essential needs while investing boldly elsewhere.But muni bonds aren’t risk-free, and they’re not a one-size-fits-all investing solution. Understanding how they work and when they don’t can help you build a retirement plan that fits your goals.
When Experts Say 'The Stock Market Is Not the Economy,' What Do They Mean?

Fact checked by Stella OsobaXavier Lorenzo / Getty ImagesThe market turmoil caused by President Trump's 2025 tariff announcements has experts reassessing a longstanding maxim: "The stock market is not the economy."Brenton Harrison, a certified financial planner, founder of New Money New Problems, and a member of Investopedia's Advisor Council, pointed to reasons to rethink the dictum. Many investors now trade for themselves via apps like Robinhood Markets Inc. (HOOD) and other platforms, which has "increased Main Street’s interest in Wall Street," he said. "By having skin in the game, Main Street investors are more attuned to activities on Wall Street that impact their daily lives and portfolios."So, is this part of a narrowing of the supposed gap between Wall Street and Main Street? We suggest possible answers below.Key TakeawaysThe point of noting that "the stock market is not the economy" is to stress that high stock prices don't necessarily mean the economy is strong, nor does market turmoil mean it is weak.The stock market reflects expectations of future profitability of publicly traded companies, which is only loosely connected to how the average person experiences the economy, usually through prices, the availability of jobs, and wages.Still, events of the mid-2020s have led some to suggest that the phrase is perhaps less true than before, especially in crisis times.Market Signals and Economic RealityThe notion that the stock market isn't the economy is decades old. Kai Ryssdal of "Marketplace" popularized the phrase just before the 2008 Financial Crisis, emphasizing that one shouldn't confuse what's happening in one with the other. The stock market tracks the value and expected future earnings of publicly traded companies, while the economy comprises all U.S. production, consumption, employment, and commerce.Ryssdal still stresses the point, though in a manner that's somehow both blunter and more nuanced. For example, in March 2025, he seconded a Bluesky post by noted economist Paul Krugman, who repeated the phrase three times, then wrote, "Nonetheless, holy sh*t," citing market fears about Trump administration tariffs.What the Phrase MeansAs Krugman put it a few years ago, "The relationship between stock performance—largely driven by the oscillation between greed and fear—and real economic growth has always been somewhere between loose and nonexistent." This means, as a March 2025 Economic Policy Institute report put it, "More often what is happening to stock prices gives us no insight into the wider economy."The market is also not very representative of the U.S. economy:The main index, the S&P 500, has just 500 companies out of America's 33 million businesses.Data noting that over 60% of Americans own stock can be misleading, since those in the top 10% by wealth own 87.2% of equities and mutual fund shares.S&P 500 companies earn almost a third of their revenue overseas.ImportantMore American families than ever own stocks—more than 60% own stocks either directly or indirectly through their retirement plans, but only about a fifth own stocks directly. Meanwhile, the richest 10% of American families own nearly 90% of all stocks.Still, some argue for using the market's ups and downs as an economic barometer. For example, during his first administration, President Donald Trump invoked a rising stock market as evidence of his economic stewardship, suggesting policies doing the opposite should be abandoned.That would mean a “stock market veto," largely by the wealthiest Americans (and not a few foreigners). Policy shifts from the New Deal to the Affordable Care Act (ACA) in 2010 and beyond have caused market drops. Yet, regarding the ACA, the market reaction wasn't even a good barometer of how healthcare stocks would fare. For example, we calculate that despite an initial price drop, the Health Care SPDR ETF (XLV) rose about 387% between the ACA's passage and April 2025—higher than the S&P 500 index's impressive 354%.Updating the Relationship StatusThere's a saying among investors and analysts that in a crisis, everything is correlated, which means that everyone is selling everything. In this context, perhaps it's helpful to add that, while in ordinary times the stock market does not reflect the economy, in times of crisis both are greatly affected.For example, Wolfers said there's good reason to take heed of the market's reaction to Trump's tariffs. The turmoil in equities and bonds is evidence that Wall Street isn't buying Trump's argument that his tariffs, which would fundamentally restructure global trade, will lead to greater profitability and a more robust American economy, he says."Ordinarily, I have a lot of sympathy for the statement that the stock market is not the economy," Wolfers said. "But I think this time it's more central to understanding what's going on in the economy."Crucially, plunging markets can hit the economy by damaging consumer sentiment. Even though most stocks are held by wealthier families, when markets and the value of 401(k)s are falling, this dominates news broadcasts, Main Street takes notice, with people often quickly cutting their spending, which in turn slows economic growth."This month’s market activity shows that companies and governments recognize how fast consumer sentiment can change an economy," Harrison said. "In past times of turbulence—the Great Recession, the early 2000s tech bubble—some of the market forces that led to a crash were in motion for years before Main Street was aware of them. ...Recent market events have shown that the time between a Wall Street activity and Main Street’s reaction to it has whittled down to days." The Bottom Line"The stock market is not the economy" is a reminder that stock market troubles don't necessarily lead to slowing economic growth—hence economist Paul Samuelson's joke in 1966 that "Wall Street indexes [have] predicted nine out of the last five recessions."That said, markets can influence the economy. They help businesses fund growth, offer investments for millions of Americans, and perhaps, as Wolfers suggests, provide important insights about certain policies. The relationship is thus more nuanced than screaming headlines about stock market crashes might lead one to believe.
How to Turn Your Home Into Retirement Income Without Selling It

Fact checked by Suzanne KvilhaugRidofranz / Getty ImagesIf you’ve been a homeowner for a while and built up considerable equity in your home, you can use this equity to generate needed retirement income without having to sell your home.Key TakeawaysIf you have built up a lot of equity in your home, you may wish to tap into it. Doing so will boost your retirement income and pay for unexpected expenses.With a reverse mortgage, some of your home’s equity gets converted to cash, but you’ll pay high fees. You’ll also need to be 62 or older to qualify.A cash-out refinance gives you a brand-new, larger mortgage and access to cash, plus higher mortgage payments.A home equity line of credit (HELOC) allows you to tap your home’s equity with ease. Working like a credit card, interest is not applied to any of the credit line that you don’t use.Consider the costs of each home equity option, including interest rates, fees, and higher payments. As a homeowner, you are free to use your home’s equity, but you want to make sure you use it wisely.Understanding Home EquityIf you have owned your home for a number of years, there’s a good chance you’ve built up a good chunk of home equity. This can be a valuable resource in your retirement years.“Home equity is the difference between the market value of a home and the amount still owed on the mortgage,” said Shaun Osher, founder and chief executive officer of Core Real Estate. “Generally, as homeowners pay down and contribute to their mortgage, their property value increases, and their equity grows in the background. This is mostly why people consider their homes to be a major asset—sometimes their most significant asset—as they approach retirement.”For retirees without many other resources, tapping the home equity in their homes can provide needed retirement income that can be used to pay for medical and other expenses.Options for Generating Income From Home EquityHere is a closer look at three options for tapping into a home’s equity: a cash-out refinance, a reverse mortgage, and a home equity line of credit (HELOC).Cash-out RefinanceWith a cash-out refinance, you get a new mortgage and access to cash.“A cash-out refinance is when a homeowner replaces their current mortgage with a new, larger mortgage. They then will receive the difference between the two loans in cash,” Osher says. “Essentially, it’s a way of benefiting your home’s growth in equity without having to sell.”A cash-out refinance is one way of getting a lot of cash out of your home in a hurry.“This approach is particularly appealing to retirees who need a large sum of money quickly for unexpected expenses,” Osher says.But there are downsides. With a cash-out refinance, you increase the size of your mortgage, and that means larger and longer mortgage payments.“One of the main issues with a cash-out refinance is that it resets your mortgage timeline, so your debt extends into the later years of your life,” Osher says. “If the home value drops, that could leave the homeowner with less equity than they previously thought.”Reverse MortgageTaking out a reverse mortgage is another way to turn equity in your home into cash.“A reverse mortgage turns your home’s equity into income, but rather than paying a lender, the homeowner receives it,” Osher says. “It’s only available to homeowners age 62 and older, and allows them to stay in their homes. They receive a lump sum, monthly payout, or a line of credit, depending on their preference.”But there are drawbacks to consider—since reverse mortgages involve borrowing against the equity in your home, they can add to your debt and reduce your home equity. Additionally, many reverse mortgages have variable interest rates, which means that the interest rate may increased based on the economic environment.“While the loan doesn’t require monthly payments, there are strings attached. Fees can be higher than the average loan, the interest on the loan accumulates, and the equity that’s left to heirs in the event of the homeowner’s passing is significantly reduced,” Osher says.To qualify for a reverse mortgage, your credit will be evaluated. If your credit is not great, you could get stuck paying high fees.“The fees charged by the lender can be significantly higher when poor credit comes into play,” says Bruce Maginn, an advisor at Solomon Financial.Before taking on a reverse mortgage, you may want to seek out the advice of a financial advisor who can guide you through whether it's the right decision for you.“It’s a relatively complicated financial move, and often can be an emotional one, so it’s important to consult a financial advisor who can take a holistic look at your financial situation and make an informed, objective recommendation,” Osher says.Home Equity Line of Credit (HELOC)A simple way to access your home’s equity is with a home equity line of credit (HELOC).“Basically a credit card secured by your home, HELOCs give you access to a line of credit, up to a certain limit, allowing you to borrow what you need and repay it over time,” Osher says. “The biggest advantage of a HELOC for retirees is the flexibility it offers, especially if your expenses are not set in stone. They usually carry a lower interest rate.”Like reverse mortgages, there are downsides to using HELOCs as well—because they have variable interest rates, interest rates can increase and monthly payments can be hard to budget for.“If you fail to pay the balance, your home is then at risk,” Osher says. “If you’re particularly disciplined with money and a wise spender, this could be a great option, as long as you have a long-term plan to manage the new debt.”Advantages and Disadvantages of Using Home Equity for Retirement IncomeBefore using your home’s equity to boost your retirement income, consider the advantages and disadvantages of such a move.“Using home equity to fund retirement can increase cash flow and create financial breathing room, for sure. Its biggest benefit is that you can stay in the home you love, keep your routine and neighbors, and avoid any major disruptions to your everyday,” Osher says. “It does, however, also mean taking on new financial burdens, and if you can’t keep up with payments, there’s always the risk of foreclosure.”ProsCan increase cash flowStay in your homeConsNew financial burdensRisk of foreclosure if you can’t keep up with paymentsFinancial Considerations and RisksTapping into your home’s equity may be convenient, but it isn’t free. There are interest rates and fees to consider. Your home is a valuable asset, and you make it less valuable when you use up some of its equity. Before deciding to use your home’s equity for short-term cash flow, carefully consider your long-term financial plans as well.You will also need to be careful with the amount of equity that you tap from your home.“If you’re especially responsible with money, [tapping home equity] could be a solid option for you, but if you struggle to stay on top of your finances, taking out new debt may be more trouble than it’s worth,” Osher says.Alternative Strategies for Generating Retirement IncomeThere are other ways to use your home to increase your retirement income, such as renting out a room. If you have a larger home, you could even convert the lower level into an apartment. Monthly rent checks will go a long way in boosting your retirement income.“Renting out a guest suite, starting a short-term rental, or investing in income-generating assets with pulled equity are all creative ways I’ve seen retirees generate income while keeping their home intact,” says Adriana Trigg, owner of Legionary REI.Retirees can also rent out other parts of their home for some additional income.“Other parts of the home, such as garages, driveways, basements, and attics, can be rented out for storage or parking spaces,” says Ryan Barone, chief executive officer of RentRedi. “Retirees can also convert parts of their home into spaces that can be used for social gatherings to fulfill certain hobbies and activities.”Those hobbies could be everything from arts and crafts and sewing to yoga classes.“This will also generate some extra income while helping retirees remain active and connected to their communities,” Barone says.The Bottom LineTapping into your home’s equity is one way to increase your retirement income, pay for unexpected expenses, and stay in your home. The simplest way to tap into your home’s equity is with a HELOC. It works like a credit card, and no interest gets applied to any of the unused credit line.A reverse mortgage is another way to convert equity in your home into cash, but you’ll need to be 62 or older to qualify. Reverse mortgages also come with high fees.A cash-out refinance gives you a new, bigger mortgage and access to cash. But you will also have larger mortgage payments.Your home is a valuable asset, but tapping into its equity may make it less valuable, so carefully weigh the pros and cons of doing so. Receiving the cash can be helpful, but interest and fees accumulate over time, and your home, which you may intend to leave to heirs, could end up being worth less.