These are perilous times for retirees and other folks who rely on investment income to cover living expenses. On one side, we've got the Federal Reserve trying to hammer interest rates into the ground. Who can make ends meet on Treasury bills paying 0.2% a year?

At the same time, corporations are slashing dividends and defaulting on bonds at an alarming pace. It's no fun swapping out of Treasuries only to find that the "higher yield" you thought you were earning elsewhere has suddenly evaporated.

Here's the solution I've worked out: Divide your income-producing assets into three buckets:

Bucket #1: Safety First
(Ultraconservative investments yielding 1%–3%)

Your primary goal here is to make sure you get your principal back, whenever you need it, with a modest income cherry on top.

For this purpose, I continue to give pride of place to FDIC-insured bank money market accounts. Some smaller local institutions (credit unions, in particular) offer excellent rates.

For most of us, though, the best option is to open an account with an Internet-based outfit like GMAC Bank (www.gmacbank.com or 866/246-2265). GMAC Bank's online savings account is paying 2.5%. Minimum deposit: $1. (Discover more ways to profit despite the gyrating Dow here.)

You might be wondering how safe I consider the FDIC to be.

Answer: Very safe. It's true, of course, that a rash of large bank failures could deplete the agency's reserves. However, Congress is well aware of the FDIC's crucial role in preserving confidence in the banking system. Sen. Christopher Dodd, chairman of the Senate Banking Committee, recently introduced a bill to let the FDIC borrow up to $500 billion from the Treasury in a pinch. I think the bill would pass in a heartbeat if the necessity arose.

Get six tips for weathering the financial storm here.

Bucket #2: Income and Growth
(Mainstream investments yielding 3%–7%)

Your second bucket should be at least as big as #1 and bigger than #3.