What is the best ETF for retirement income?
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a great income-focused fund retirees can buy and hold. It has many high-yielding dividend stocks, including a top 10 filled with energy companies, consumer staples companies, and pharmaceutical stocks.
- Vanguard S&P 500 ETF (VOO)
- Schwab U.S. Small-Cap ETF (SCHA)
- Invesco QQQ Trust (QQQ)
- Vanguard High Dividend Yield Index ETF (VYM)
- Vanguard Total International Stock ETF (VXUS)
- Vanguard Total World Stock ETF (VT)
- iShares Core U.S. Aggregate Bond ETF (AGG)
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a great income-focused fund retirees can buy and hold. It has many high-yielding dividend stocks, including a top 10 filled with energy companies, consumer staples companies, and pharmaceutical stocks.
| ETF | Dividend yield (trailing 12 months) | Expense ratio |
|---|---|---|
| iShares Preferred and Income Securities ETF (ticker: PFF) | 6.4% | 0.46% |
| Global X Nasdaq 100 Covered Call ETF (QYLD) | 11.6% | 0.61% |
| Amplify CWP Enhanced Dividend Income ETF (DIVO) | 4.6% | 0.56% |
| JPMorgan Equity Premium Income ETF (JEPI) | 7.9% | 0.35% |
| FUND (TICKER) | EXPENSE RATIO | MINIMUM INVESTMENT |
|---|---|---|
| Vanguard Target Retirement Income Fund (VTINX) | 0.08% | $1,000 |
| Fidelity Freedom Index Income Fund Investor Class (FIKFX) | 0.12% | $0 |
| Schwab Monthly Income Fund Income Payout (SWLRX) | 0.21% | $0 |
| Schwab Monthly Income Fund Flexible Payout (SWKRX) | 0.25% | $0 |
Bottom Line on ETFs for Retirement
ETF benefits, including simplicity, low expenses and tax efficiency, make exchange-traded funds a worthwhile investment for retirement. Popular types of ETFs for retirement include dividend ETFs, fixed-income ETFs and real estate ETFs.
ETFs offer advantages such as low expense ratios, intraday trading, and diversification within a 401(k) plan. They are less popular in 401(k)s due to the traditional prevalence of mutual funds, which are more familiar to participants and have several benefits.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Cons. No guarantee of future dividends. Stock price declines may offset yield.
- Vanguard High Dividend Yield ETF (VYM).
- iShares Core High Dividend ETF (HDV).
- Schwab U.S. Dividend Equity ETF (SCHD).
- SPDR Portfolio S&P 500 High Dividend ETF (SPYD).
- Vanguard International High Dividend Yield ETF (VYMI).
- Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
What ETF has 12% yield?
| Symbol | Name | Dividend Yield |
|---|---|---|
| BITO | ProShares Bitcoin Strategy ETF | 12.18% |
| XRMI | Global X S&P 500 Risk Managed Income ETF | 12.14% |
| RYLD | Global X Russell 2000 Covered Call ETF | 12.11% |
| QRMI | Global X NASDAQ 100 Risk Managed Income ETF | 12.11% |
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
1. Vanguard S&P 500 ETF (VOO -0.07%) Legendary investor Warren Buffett has said that the best investment the average American can make is a low-cost S&P 500 index fund like the Vanguard S&P 500 ETF.
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
Some financial advisors recommend a mix of 60% stocks, 35% fixed income, and 5% cash when an investor is in their 60s. So, at age 55, and if you're still working and investing, you might consider that allocation or something with even more growth potential.
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.
| Exchange-traded fund (ticker) | Assets under management | Expenses |
|---|---|---|
| Vanguard Dividend Appreciation ETF (VIG) | $78.2 billion | 0.06% |
| Vanguard U.S. Quality Factor ETF (VFQY) | $324.3 million | 0.13% |
| SPDR Gold MiniShares (GLDM) | $6.8 billion | 0.10% |
| iShares 1-3 Year Treasury Bond ETF (SHY) | $24.8 billion | 0.15% |
VTI is a total U.S. market fund and holds more than 3,500 stocks. VTI is better diversified and benefits from small and mid-cap stocks that grow into large caps. VOO is less diversified, tracking the performance of the S&P 500 Index. VOO excludes small and mid-cap stocks.
You can make money from ETFs by trading them. And some ETFs pay out the money the ETF makes to investors. These payments are called distributions.
Do ETFs make sense in an IRA?
ETFs within a Roth IRA can be a great way to invest for the long-term to reach your financial goals in retirement. ETFs can help you build a solid retirement portfolio because of the diversification offered by a single, convenient, and easy purchase.
IRAs can hold various types of investments, not just ETFs and mutual funds. Other options like bonds, individual stocks, certificates of deposit (CDs) and real estate investment trusts (REITs) offer different risk and return profiles. Each has unique risks and limitations.
The 4% rule is the basis of retirement plans across the world, heralded as a 'safe' withdrawal rate from your portfolio. A few simple calculations and the 4% withdrawal rate leads to the magic number that is the lump sum you need in retirement. Voila.
This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.
"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."
