Is there any way to make 3% annual income on $200,000 and still protect the principle? Or is this just impossible? I am retired and would like a bit more income each year.

There is a way to make close to 3% by buying the 10-year treasuries now that are trading around 2.85%. They are a risk-free debt instrument of the Federal Government and generally are state tax-free. In theory, as long as you hold them to maturity there is no risk to principal. Hopefully, this helps explain one of your options. There are some other options we can talk through if you would like, feel free to schedule a consultation to talk.