If you’re looking to construct a portfolio that can help ease you into a fairly comfortable retirement, there are plenty of options on the ETF scene to consider. Undoubtedly, things can be as simple or as complex as you wish, depending on your unique needs. Undoubtedly, some prospective retirees might be set on staying invested in the same kinds of ETFs they gradually bought when they were in the workforce, while others might be more inclined to switch gears from more of a growth tilt to one that’s heavier on the passive income.
Undoubtedly, you don’t need to chase higher yielders when you’re getting ready to retire if you have plans to subscribe to the “4% rule,” which entails 4% in annual drawdowns from your portfolio. However, if you’re keen on living off the dividends or, at the very least, supplementing a drawdown strategy with dividend payers, there are some dividend ETFs that are worth knowing about before you have your next meeting with your financial adviser or retirement planner. And if you’ve been a self-guided investor throughout your career, the following ETFs might also be great bets as you make the transition.
So, if you’re looking for a list of potential dividend ETFs to help finance your retirement lifestyle, here’s a trio that I personally think work well together:
Schwab Dividend U.S. Equity ETF
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Not too surprisingly, we have the Schwab Dividend U.S. Equity (NYSEARCA:SCHD) as a top pick for dividend-focused retirees to consider as a core holding. The SCHD offers a 3.79% yield and provides broad exposure to a number of firms with dividends that are on a very sound footing. Many of the holdings are also well-positioned to grow their payout annually.
Of course, the higher yield means less in the way of growth, so investors should have realistic expectations for capital gains moving forward, especially relative to the S&P 500, which I now view as a tech-heavy ETF, perhaps too tech-heavy for the likes of retirees seeking shelter from AI bubble fears while getting more yield.
In any case, the SCHD is a great place to be and remains one of the essentials for those who want to retire and live off dividends. There’s a reason why the SCHD is the most popular dividend ETFs out there.
JPMorgan Income ETF
The JPMorgan Income ETF (NYSEARCA:JPIE) is a somewhat lesser-known income ETF, especially compared to the SCHD. Regardless, it’s a solid option, especially for retired investors to crank up their bond exposure. Today, shares of JPIE yield 5.75%, which is quite attractive as far as passive income ETFs go. With a gold rating from Morningstar, the JPIE is a premier option for investors seeking a low-cost option to bet on the broader bond market.
What’s behind the gold rating? The JPIE has been able to achieve what it describes as a “high-yield-like” yield, but with less volatility. Indeed, that’s quite an achievement, especially if you’re a fixed-income investor who’s looking to do better than Treasuries but doesn’t want to crank up the volatility.
So, for the bond side of the portfolio, the JPIE has to be nothing short of enticing for retirees.
Vanguard International High Dividend Yield Index Fund ETF
Finally, we have the Vanguard International High Dividend Yield Index Fund ETF (NYSEARCA:VYMI), which sports a 3.95% yield by investing in a broad range of global names. It’s not just the yield that makes the VYMI a top-notch candidate, but the slightly lower correlation to the broad market (0.92 beta).
As a passive ETF, you’re getting a rock-bottom expense ratio (0.17%) and exposure to a broad number of stocks across the international market (more than 1,500 names) that span emerging markets (21% exposure) and developed markets (around 79%). The VYMI really is a one-stop shop for retirees who want passive income with an international tilt.
And, as mentioned in prior pieces, lower valuations, I believe, are starting to become a bigger draw for the investment dollars of U.S. investors.
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