If you have $5 million in cash, you can buy a bunch of munis for your state, and get, even now, a 4% return on your investment. That's miserable, but that's still about $200,000 a year -- and you owe no income tax on it. I think, with a little restraint, it is possible to live pretty decently on that. :-)
Of course, in exchange for the low interest rate, munis are traditionally considered pretty safe. But this article from the August 15, 2012 Washington Post, would indicate that they aren't quite as safe as everyone assumes:
Defaults on municipal bonds for decades have been far higher than reported by rating agencies, bringing into question the true risk of a common investment widely considered to be safe, according to a study released Wednesday by the Federal Reserve Bank of New York.
Economists at the agency counted 2,521 muni bond defaults since 1970, whereas ratings agency Moody’s Investors Service, for instance, reported 71....
Supporters of muni bonds say that despite a few high-profile cases, government securities rarely default. Data from the New York Fed, however, suggests otherwise.