These 3 index ETFs are a retiree’s best friend

Before finishing work, investors prioritize growth. However, after their labor-based income ends, they want to focus more on income and capital preservation. They may also want to simplify their retirement investments just so they can spend more time enjoying life.

Well, good news, retired investors! Exchange-traded funds or ETFs (which are bought and sold like individual stocks) can meet the needs of retirees and make investing simpler. Here’s a list of three that, as a group, might be just what a retiree is looking for. Each of them brings above-average safety to the table, as well as above-average income.

Vanguard High Dividend Yield ETF for dividend income

Starting with the most obvious and pressing need, you’ll want to invest in something that can help pay your bills once you’re no longer earning money at a job. The ETF Vanguard High Dividend Yield (VYM 0.34%) it fits.

As the name suggests, these ETFs offer good dividend income. After the most recent look, its annualized dividend yield is 2.7%. However, note that the base payouts are not particularly consistent. The fund’s most recent quarterly payout of $1.02 per share is a stark contrast to March’s payout of just $0.65 per share, which was miles away from last December’s $1.10 dividend. So if you need money from this ETF, you’ll need to save some of those higher payouts to offset lower payouts in other quarters.

But given the strength of the return and the quality stocks you own through this ETF, it’s worth the effort. The fund’s main holdings at the moment include digital communications technology names Broadcom, JPMorgan Chase, ExxonMobiland Procter & Gamble. None of these stocks are wildly successful, but all companies are built to last and pay dividends as long as they do. These stocks also offer the prospect of decent dividend growth, as well as capital appreciation, which you’ll still want/need even in retirement.

iShares Core US Aggregate Bond ETF for bond safety

For years, interest rates lingered at such low levels that there seemed to be no point in buying bonds. That is no longer the case, however. Even with their recent slide, interest rates remain close to the multi-year highs they hit in late 2023.

Translation: You can still find high yields in bonds, although it might be easier to own a well-diversified bond fund.

ENTER iShares Core US Aggregate Bond ETF (AGG 0.24%). This ETF, intended to reflect the entire U.S. investment grade bond market, holds mostly Treasuries issued by the U.S. government, although it also holds a fair amount of paper issued by government-backed agencies such as Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae). The current collective yield paid to fund owners is 3.44%. You may do better in terms of immediate income potential, but you’d be risking your principal to get those higher returns. Bonds offer no real potential for capital appreciation, but neither do they pose any risk of major capital loss.

Bond ETFs are also a smart alternative to owning individual bonds, simply because the managers of these funds handle the tedious and never-ending task of replacing maturing bonds with new ones. And with an expense ratio of just 0.03%, it’s also probably cheaper to just let the managers of the iShares Core US Aggregate Bond ETF do the work than it would be to do it yourself.

ProShares S&P 500 Dividend Aristocrats Dividend Growth ETF

Last but not least on this list, there is ETF ProShares S&P 500 Dividend Aristocrats (NOBLE 0.38%). A Dividend Aristocrat® is a stock that has increased its dividend payment every year for at least each of the past 25 years, although most Dividend Aristocrat®s have been doing so for much longer. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.)

The upside of these stocks is relatively obvious: Dividend income for owners grows over time, usually keeping pace with, if not outpacing, inflation. For perspective, over the past 10 years, the ProShares S&P 500 Dividend Aristocrats ETF’s dividend payments have grown at an average annual rate of nearly 12%. Beautiful!

What’s the catch? There really isn’t one. You could argue that the relatively low dividend yield of just over 2% is a downside, and maybe if you need more income right away.

If you can find a way to accept a below-average dividend yield early in your trade, though, it’s worth it. This ETF holds several high-quality names such as The Clorox Company, McDonald’sand insurer Aflacto name just a few. These are reasonably safe names worth owning regardless of how much they pay out in dividends.

You’ll likely get at least a little capital appreciation with this fund, and dividend stocks are proven winners over time. Research from mutual fund company Hartford indicates that over the past 90 years, the highest net gains have been made by the market’s most reliable dividend payers and dividend producers when they reinvested those dividend payments..