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After spending years on the clock and building up your nest egg, you want to step into the retirement you deserve. Maybe you want to retire to your dream destination or take adventures you didn’t have the time for while you were busy working. But a lot can get in the way.
Inflation and unexpected market downturns can eat away at your savings. You may be left with too little to live the life you want. Or you could face every retiree’s nightmare: outliving your savings.
But don’t fret. There are many ways to turn your savings into a consistent and reliable stream of income. Some turn to dividend exchange-traded funds (ETFs). These are professionally managed funds that invest in a variety of stocks. Plus, these deliver quarterly or monthly payments in the form of dividends from company profits.
But with so many dividend ETFs out there, there are a few that may cater specifically to retirees. You should be looking for more than just a suitable yield. The bigger the yield, the bigger the payout. But that’s not always a good thing. Some struggling companies offer high yields to attract investors. Instead, you may want to seek out ETFs that invest in financially stable companies that are not only capable of maintaining dividend payments but also increasing them. At this point, you’re also going to want to avoid high volatility. And low fees are also key. There are other characteristics. So we devised a short list of some key dividend ETFs you may want to look into if you’re looking for reliable paychecks in retirement.
Schwab US Dividend Equity ETF (SCHD)
Retirees looking for an ultra low-cost dividend ETF that invests in quality companies can look into the Schwab US Dividend Equity ETF (SCHD). This ETF screens for high-yielding companies that have a track record of paying dividends. Remember, a company can increase, decrease or eliminate dividends all together at will. So the SCHD managers work to find firms that keep the pace, offering retirees some peace of mind.
And this strategy has helped the fund generate a generous yield of about 3.51%. So a $400,000 investment with a yield of 3.51% could earn you around $1,170 a month.
And you can snatch this up for a very low fee. SCHD has an expense ratio of 0.06%. That means the annual fee on a $10,000 investment is $6.
Plus, SCHD is well concentrated along defensive sectors, which tend to hold steady even during market turmoil. If you’re interested, here’s an in-depth look at its portfolio.
- Energy: 19.88%
- Consumer Staples: 18.50%
- Health Care: 16.20%
- Industrials: 12.10%
- Financials: 9.68%
- Consumer Discretionary: 8.47%
- Information Technology: 8.20%
- Communication Services: 4.27%
- Materials: 2.66%
- Utilities: 0.04%
Moreover, SCHD has generated a five-year return of about 39.87%, a 1-year return of 12.15% and a year-to-date return of 14.39%.
And the fund holds $78.4 billion in net assets.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) seeks steady income by investing in high-quality companies that pay high dividends, but experience low volatility in order to steer investors clear of value traps and mitigate risk.
And it offers a yield of about 4%. This means a $400,000 investment could pay $1,333 a month with that yield. Its holdings are mainly in real estate and defensive sectors like consumer staples and utilities.
Here’s a breakdown of its holdings.
- Real estate: 21.86%
- Consumer staples: 16.50%
- Utilities: 14.05%
- Health care: 12.99%
- Financials: 12.66%
- Energy: 9.87%
- Communication services: 7.13%
- Industrials: 2.84%
- Materials: 2.10%
SPHD has also seen some strong recent performance with a five-year return of about 32.12%, a 1-year return of about 5.74% and a year-to-date return of around 8.70%.
And it holds assets of about $3.51 billion.
JPMorgan Equity Premium Income ETF (JEPI)
The JPMorgan Equity Premium Income ETF (JEPI) behaves a bit differently than the other funds on our list. It produces income by investing in large-cap stocks and selling options. But many retirees value JEPI for its high yield of about 8%.
So a $400,000 investment would pay an estimated $2,667 a month at a yield of 8%. Moreover, JEPI has also earned a Morningstar Silver Medalist Rating.
Its main holdings are firms in the information technology sector. But it’s also diversified across a handful of industries. Here’s a deeper look.
- Communication Services: 5.7%
- Consumer Discretionary: 10.8%
- Consumer Staples: 6.7%
- Energy: 2.0%
- Financials: 11.0%
- Health Care: 12.4%
- Industrials: 12.3%
- Information Technology: 14.5%
- Materials: 1.9%
- Real Estate: 2.8%
- Utilities: 5.0%
- Other: 15.1%
But despite its high yield, JEPI’s performance hasn’t been as notable as the other funds on this list. It has a five-year return of about 6.37%, a one-year return of -0.37%, and a year-to-date return of 2.60%.
But its high yield and emphasis on low volatility may find a suitable spot somewhere in the portfolio of retirees seeking reliable income.