Laid Off at 61 With Four Years Until You Planned to Retire? Selling Into a Down Market Locks the Loss In. These 3 ETFs Buy You Time

You planned to work until 65. At 61, your employer made that decision for you. Selling stocks during a downturn to cover living costs turns a temporary paper loss into a permanent one when you have the least time to recover.

You can avoid that with a few ETFs. The Schwab Short-Term U.S. Treasury ETF (NYSEARCA:SCHO), the iShares Floating Rate Bond ETF (CBOE:FLOT) and the Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV) give you a spending reserve, a cash alternative that pays monthly, and a measured stake in stocks for the recovery.

Your Biggest Risk Right Now Is Timing

Initial jobless claims came in at 197,000 for the week ending September 26, below the 200,000 line that points to a strong labor market. That doesn’t help if you’re 61 and the search takes longer than expected. Plan as if your next paycheck is months away.

You have four years to cover before retirement. Pay for that period from assets that barely move, so you never sell stocks at a bad price. The Fed raised its target rate to an upper bound of 4.00% in mid-September, and two-year Treasuries yielded 4.79% on October 6. Safe money is making real income again.

SCHO Holds the Cash You Will Spend First

SCHO tracks the Bloomberg US Treasury 1-3 Year Index, so it has U.S. government debt that matures within about three years. Its June 30 holdings show Treasury notes spread across maturity dates plus a small money market position, with about $13 billion in net assets. It debuted in August 2010.

Its short maturities limit price swings. SCHO gained 1.77% over the past year and 9.8% over five years. It pays monthly, with trailing 12-month payouts of $0.9176 per share yielding roughly 3.8% at current price. The 0.03% expense ratio costs about $30 a year on a $100,000 position.

FLOT Pays More When Rates Stay High

FLOT launched in June 2011 and tracks the Bloomberg US Floating Rate Note < 5 Years Index. Its bond coupons reset with short-term rates, so when the Fed raises rates, your income rises too. That removes most interest-rate risk that hurts traditional fixed-rate bonds.

The fund holds about $10.3 billion in investment-grade notes from large U.S. and foreign banks and blue-chip corporate borrowers. It paid $2.18 per share over the past 12 months, a trailing yield near 4.3%, paid monthly. It returned 4.33% over the past year and moved just 0.38% over the past month.

SCHV Keeps You Positioned for the Recovery

Moving everything out of stocks at 61 creates another danger: running out of money in a retirement that could last decades. SCHV tracks the Dow Jones U.S. Large-Cap Value Total Stock Market Index and holds established, dividend-paying companies in financials, energy, health care, industrials, and consumer staples. As of May 31, its largest positions included Berkshire Hathaway (NYSE:BRK.B) at about 2.8% and Exxon Mobil (NYSE:XOM | XOM Price Prediction) at about 2%. Net assets stood near $15.5 billion.

SCHV pays quarterly. Its September distribution was $0.1632 per share, with trailing payouts of $0.6263 yielding near 1.9%. The fund returned 17.88% over the past year but slipped 2.49% over the past month. That dip shows why SCHV is money you leave alone to recover while bond funds pay the bills.

Trade-Offs to Weigh Before You Move Money

Each fund carries real risk. SCHO’s price can fall when rates jump, as its 0.38% decline over the past month shows. FLOT’s income drops when the Fed cuts. Its latest monthly payout of $0.174882 already trails the $0.208408 it paid a year earlier. FLOT also owns bank and corporate debt, which carries credit risk. SCHV can fall sharply in a bear market.

Both bond funds are there to buy you time, since their yields fall short of a full salary. Your severance, unemployment benefits, and when you claim Social Security will still shape how long that time lasts.

Why This Mix Fits a Four-Year Bridge

With four years to cover at 61, the order you spend in matters. SCHO holds money you’ll use first. FLOT earns monthly income on money you’ll use next. SCHV keeps your long-term money invested, so a down market becomes a pause rather than a permanent loss. A bad market right as you stop working does more lasting damage than one later on, which is the problem we walked through in a free guide to defending the first years of retirement. Watch the Fed’s rate decisions, as they drive payouts on both bond funds.

Contact [email protected] for any questions or corrections.