Retiree Tax-Exempt Income and Capital Preservation Suitability
A 68-year-old retired investor in the 35% federal tax bracket seeks steady income with low capital risk. She has $300,000 to invest from the sale of her primary residence and requires regular cash flows to cover living expenses. Which investment recommendation is MOST suitable?
An in-state municipal bond fund delivers federally and state tax-exempt income, suited for a high tax bracket (35%) retiree prioritizing capital preservation.
Complete Analysis & Legal Rationale
The client is retired, highly sensitive to taxes (35% bracket), and needs income with low risk. Municipal bonds, especially in-state GO bonds or quality muni funds, provide tax-exempt income with historically low default rates. High-yield bonds have excessive credit risk, equity funds carry market fluctuation risk, and DPPs are illiquid and speculative.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Tax-free income maximizes after-tax return for 35% bracket while maintaining conservative credit quality.
High-yield junk bonds subject a retiree to severe default risk and fully taxable interest.
Equities do not provide the safety of principal required for essential retirement living expenses.
DPPs are highly illiquid and speculative, completely unsuitable for retirement living expenses.
Official Standard: Requires matching customer investment profile, tax bracket, and liquidity needs.