At the very top of the list for anyone looking to retire right now without subjecting themselves to significant market swings, ETFs have become incredibly popular. Offering both diversification and a low barrier to entry, ETFs have become one of the most ideal investments for building retirement savings.
If you have a high income, investing your money in a vehicle that can simply grow (and continue to grow) is the best idea. You don’t want to have to worry about marketing downswings while retired, and the good news is that the diversification of ETFs often helps protect against these very same downswings.
VTES
One of the most important considerations for any tax-free ETF is that it will not be comprised of individual stocks. Instead, with an ETF like VTES or the Vanguard Short-Term Tax-Exempt Bond ETF, it’s going to be full of municipal bonds.
Holding 2,600 municipal bonds, you get an ETF that offers plenty of diversification, all while lowering your risk profile by investing in hundreds, if not thousands, of high-quality tax-exempt bonds. Almost 56.4% of the portfolio is comprised of AA-rated bonds, with an average maturity duration of around 2.5 years. As a result, you have a share price that is less sensitive to interest rate adjustments, which is good news for high-income retirees who just want stable growth.
As of this year, the ETF is delivering a return of around 1.32%, but its 3-year return is significantly better, at 3.64%, which is among the highest in the municipal-bond ETF space.
SUB
With a 1.17% YTD return, SUB or the iShares Short-Term National Muni Bond ETF is another must-buy for high-income retirees. As of July 2025, the fund is currently investing at least 80% of its assets in component securities of the underlying index. Additionally, at least 90% of the assets are in fixed income securities, all of which are exempt from Federal income taxes and not subject to the alternative minimum tax.
In July 2025, SUB currently tracks more than 2,500 municipal bonds through the ICE Short Maturity AMT-Free U.S. National Municipal Index. This means that states such as New York, Illinois, Washington, Texas, and California are all well-represented. Better yet, with a 1.8-year average direction before maturity, there is little expectation that SUB’s price won’t be affected mainly if interest rates fall.
On the other hand, it won’t drop as much if interest rates rise, making it a relatively stable investment. It also pays a 3.2% 30-day SEC yield, which can be very attractive as a tax-exempt offering.
VCLAX
Take note, high-income California residents, as VLCAX has been incredibly worthwhile as an investment if you are in this state with its high-income tax. Investing in this ETF, better known as the Vanguard California Long-Term Tax-Exempt Fund Admiral Shares, the fund is currently paying a 30-day SEC yield of around 4.1%.
However, there is a caveat to owning VCLAX as it has a high average maturity duration of 8.3 years, which means that there might be more volatility overall as interest rates fall. Still, it’s hard to ignore a fund that features a one-year return of 11.89% as of June 9, 2025, its best performance to date. It’s too early to say if this will be repeated in 2026, but it definitely highlights the possibilities with this fund, as well as the likelihood that it fluctuates based on any economic factors that may affect interest rates.
For high-income retirees who are thinking long-term about their investment strategy and not interested in the volatility of stocks, VCLAX can be a very smart investment to make.
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