Alternative income comes with terms. The terms are the decision.

Private credit funds, interval and tender-offer funds, business development companies, REITs, preferred stock, option-income and buffered strategies, and income annuities. Each trades something for a higher distribution: liquidity, credit quality, upside, simplicity or a fee layer. None of them replaces the cash and short-bond reserve that funds the next two to three years; they are candidates for the money beyond it.

Yes, through three doors. Interval and tender-offer funds registered under the Investment Company Act are open to the public at the fund’s minimum, as are listed and non-traded BDCs. Private funds sold under Regulation D require accredited status: a net worth above $1 million excluding the primary residence, or income above $200,000 alone or $300,000 with a spouse (Rule 501(a)). Since August 2025, SEC staff no longer asks registered closed-end funds of private funds to limit sales to accredited investors.

An interval fund is a closed-end fund that does not trade on an exchange and instead offers to repurchase 5 to 25 percent of its shares at net asset value every three, six or twelve months under SEC Rule 23c-3. Shares are priced no later than 14 days after the request deadline and paid within seven days after that. If requests exceed the offer, each holder is prorated, so a full exit can take several periods. Treat the money as multi-year.

Rarely the first choice. A non-traded REIT follows the same 90 percent distribution rule as a listed REIT and its ordinary dividends carry the same 20 percent Section 199A deduction, but there is no exchange to sell on, redemption programs are capped and can be suspended, fees have historically been higher, and FINRA cautions that distributions may be funded from offering proceeds or borrowing. A listed REIT delivers the same tax treatment with daily liquidity.

For a specific job, sometimes; as a bond substitute, no. A covered-call strategy converts potential upside into cash today and keeps nearly all of the downside, and a call written on a single stock can reset the holding period for long-term treatment. Index-option premium is taxed 60 percent long-term and 40 percent short-term under Section 1256. A buffered ETF states a buffer and a cap for one outcome period, and both apply only to holders who own it for the entire period.

As longevity insurance, priced against what it replaces. A single-premium or deferred income annuity pays for life, uses an exclusion ratio under IRC §72(b) in a taxable account, and rests on the insurer’s claims-paying ability. We compare it first with delaying Social Security, then with a bond ladder. A qualifying longevity annuity contract can hold up to $210,000 of IRA money outside the RMD calculation in 2026. We receive no commission, so the answer is only about fit.

There is no fixed percentage. The ceiling is what the plan can lock up after the reserve is funded, and it falls when a business, rental property or concentrated stock already makes the balance sheet illiquid. The floor is zero; a household whose spending is covered by Social Security, pensions and a bond ladder may not need any of it. We size the allocation to the years it serves and the tax accounts that hold it.