There’s a reason a lot of people end up getting stretched thin financially in retirement. They expect Social Security to cover all of their bills only to discover that their benefits don’t even come close.
If you earn an average wage during your working years, you can expect Social Security to replace about 40% of it. This assumes that benefit cuts don’t happen which, frankly, we can’t assume based on the program’s current financial situation.
But Social Security cuts aside, most retirees need a lot more than 40% of their former paychecks to stay afloat. So it’s important to set yourself up with additional income streams.
To that end, you may want to turn to ETFs, or exchange-traded funds. ETFs offer the benefit of getting to own a bucket of assets with a single investment. And if you’re looking for income-producing ETFs that can supplement your Social Security checks nicely, here are three worth looking at.
What makes the Schwab U.S. Dividend Equity ETF (SCHD) great for retirees is that it focuses on companies with a strong history of paying dividends. Specifically, it tracks the Dow Jones U.S. Dividend 100 Index, which consists of many established businesses across a range of industries.
With SCHD, companies with weaker financials or unstable dividends are filtered out, leading to consistent income. The companies SCHD invests in also tend to be less volatile than the broad market, which may be a good match for you if you’re a retiree with a limited appetite for risk. SCHD also pays investors quarterly, which is a reasonable cadence you can work with and factor into your retirement budget.
The JPMorgan Equity Premium Income ETF (JEPI) invests in established companies within the S&P 500 index. These are all large-cap, established businesses. In addition, JEPI writes call options against its holding to generate income. That income is then shared with investors.
JEPI has an attractive yield relative to many other dividend ETFs. And unlike SHCD, it pays investors monthly, not quarterly, allowing for better cash flow.
Taxes are an issue for many retirees. If you’re looking for an ETF that won’t jack up your tax bill you may want to consider the iShares National Muni Bond ETF (MUB).
Municipal bonds are debt obligations issued by cities, states, and other localities. The nice thing about municipal bonds is that their interest is always tax-exempt at the federal level, making this ETF a tax-friendly option.
MUB offers a mix of investment-grade municipal bonds (which, incidentally, have a very low default risk, historically speaking). This not only allows for steady income, but income without an added tax bill. And like JEPI, MUB offers monthly distributions, making it a great way to supplement Social Security and create a more robust retirement paycheck overall.
If you don’t have a very high tolerance for risk, you may feel more comfortable investing in a muni bond ETF than the options above. But ultimately, all three could set you up with a really nice retirement income.
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