Social Security is only designed to replace roughly 40% of the average worker's pre-retirement income. We're not saving enough The Economic Policy Institute reports that an estimated 41% of baby boomers have no money saved for retirement at all. The median savings amount among workers aged 56 to 61 is a measly $17,000, which is a drop in the bucket. That may sound impressive, but it won't get a typical senior very far. Let's also assume you and your spouse are each eligible to receive $1,360 a month in Social Security benefits, which is what the average beneficiary gets today. Add in $2,720 from Social Security benefits ($1,360 x 2), and you have $3,401 per month to spend, or $40,812 per year. If you're aged 50 or older, you can put up to $6,500 a year into the former and $24,000 a year into the latter. If you have a 401(k) and you manage to max it out for the next 10 years, you'll have another $302,000 in retirement savings to work with, assuming your investments generate a moderately conservative 5% average annual return during that time. If you can't max out your retirement plan contributions, save whatever you can, even if it's only a few thousand dollars a year. That's why the expert financial planners and portfolio managers from Motley Fool Wealth Management have put together an exclusive video seminar on addressing our clients' biggest questions… Like what (and when) to sell in a bull market… to why all dividends aren't created equal… to the three critical questions you should be asking your financial advisor… This free video has you covered so you can weather the market in stride.
Exchange-traded funds (ETFs) are among the best ways to invest in stocks, especially for those who don’t have time to research and monitor stocks and are generally risk-averse — like retirees. In your golden years, you might also prefer investment tools that can supplement your retirement income without requiring you to put in extra effort. ETFs are a perfect fit, as they offer a passive way to own a basket of diversified stocks, and can be easily traded on stock exchanges.
Depending on your risk/reward profiles and investing preferences, you can choose from a wide range of ETFs.
For retired investors, our contributors believe that three top ETFs to go for are iShares Core Total USD Bond Market ETF (NYSEMKT:IUSB), Vanguard High Dividend Yield ETF (NYSEMKT:VYM), and Vanguard S&P 500 ETF (NYSEMKT:VOO). Here’s why.
Boost your income with this high-yield dividend ETF
Neha Chamaria (Vanguard High Dividend Yield ETF): Dividend stocks are a great way to supplement retirement income, which is why my ETF pick for retirees also revolves around dividends. Among the several dividend ETFs, I believe Vanguard High Yield ETF, which comprises more than 400 high-yield dividend stocks and tracks the FTSE High Dividend Yield Index, deserves attention.
There are several reasons why I believe this ETF is particularly well suited for retirees. For starters, more than 80% of its portfolio comprises large-cap stocks, eliminating much of the volatility and risk associated with small- or mid-cap stocks.
Second, the ETF has near-equal weightage — roughly 13% to 15% each — in several key industries including consumer goods, technology, financials, healthcare, and industrials, which means it offers investors well-balanced exposure.
Third, no single stock has more than mid-single-digit weightage — Microsoft, currently the ETF’s largest holding, comprises only about 5.5% of its total funds. Stocks like ExxonMobil, Johnson & Johnson, and JPMorgan Chase make up between 3% and 4% each.
Fourth, and most importantly, the ETF has a minuscule expense ratio of 0.08%, which means you’re hardly paying anything extra to own the ETF. For retirees, every dollar saved counts.
Given its focus on large-cap high yields, low cost, and strong historical performance — the ETF has generated 96% in total returns over the past five decades — I believe the Vanguard High Dividend Yield ETF…