The Best Income Funds for Retirement
Publushed by:John E Chambers
Last updated:August 26, 2021
Zeo Short Duration Income
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Invesco Income Advantage US Fund
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iShares High Dividend Growth
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When the time comes to leave the workforce and retire, that doesn’t mean you have to stop earning an income.
One of the most effective ways of ensuring you have a steady flow of money coming in is with an income fund, and there are some great options out there that are ideal for retirement.
What is an income fund for retirement?
An income fund is a type of fund designed to provide an income for its members, through the way of investments. During retirement, gains made through one of these funds could be enough to provide a full income or a supplemented one, provided you make smart choices.
If you dream of financial freedom in your golden years but know that your working days will be behind you, investing in one of the best retirement funds for income is the way to go. To help you navigate the choices and find one that suits your financial goals and current situation, we’ve rounded up some of the most popular funds out there.
An income fund is a great way to provide yourself with a steady income when you retire, but with all of the choices and confusing jargon, knowing which way to go is overwhelming.
We’ve rounded up our favorites from the best bond funds for retirement income to mutual funds and fixed income ones, so you have only the best to choose from.
Best Overall: Zeo Short Duration Income
Zeo’s Short Duration Income Fund or ZEOIX aims to earn long term and consistent income for its members by investing in short duration and high yield corporate debt.
The dividends are paid monthly and once you start earning, you’ll never have to worry about a thing, as it’s actively managed.
What members love most about ZEOIX is that it continues to outdo itself, and in the last year, it showed a return of 8.86 percent, compared to just 3.31 percent the previous year. If you’re someone who feels unsure about investing in an income fund specifically for retirement, seeing these types of numbers gives you the relief you need.
Another benefit of this fund is that its low risk when you look at other income retirement funds. When you’re dealing with the only money you have left and want to protect your earnings, it’s not a time when you want an aggressive investment option. Having something ZEOIX as your income fund is one of the safest ways you can guarantee yourself a regular salary without having to work.
As an actively managed risk, you know that your investment is being taken care of as well, which is another bonus. With this type of fund, the adviser is managing the investments by looking at interest rates and risks, and adjusting them as needed, so Zeo Short Duration Income Fund is doing all of the work for you.
As one of the more expensive funds you can go with, you might find that the high yields this one earns you end up getting swallowed up in fees. Of course, the higher fees can also be indicative of how expertly they’re managed and the returns you can hope to gain over the years, but if you’re looking for lower fees in a retirement income fund, there are better options out there than Zeo Short Duration Income.
In what could be another disadvantage when looking for a fund, Zeo requires a minimum of $5,000 deposit to get into this fund. If your goal is retirement income and you already have a sizeable amount of cash saved up in preparation, buying in might not be such a big deal. For those without a lot of savings, the risk of putting $5,000 into something with blind faith can be terrifying.
As far as income funds go, Zeo’s Short Duration Income is one of the best mutual funds for retirement income. This fund is designed to invest in short duration debt which means you get long term income, and their data shows that they deliver on their promises. Although you’ll need to invest quite a bit to get started and the fees aren’t the cheapest, Zeo can provide you with a reliable source of income for retirement that’s actively managed.
Runner Up: Invesco Income Advantage US Fund
Invesco has created one of our favorite and safest income funds for retirees with their Income Advantage US Fund (SCAYX).
This unique fund has an investment strategy of investing at least 80% of its assets in US equity securities and other economically similar derivatives and their pool of assets totals around $206 million, with a current year-to-date return of 16.45% for its members.
A huge selling point of this fund is that it has a low buy-in deposit, currently sitting at just USD $1,000. This pales in comparison to other funds we’ve reviewed and might make it more appealing to those who either don’t have a lot of savings or aren’t comfortable putting too much of their money into one basket.
As well as having a smaller buy in amount, Invesco’s SCAYX is considered a low-risk fund, which is another boost for your peace of mind. As a long term option for earning a regular income when you retire, there’s little chance that you’ll lose your investment with this fund, and the low-risk rating makes it a popular choice among even the most unsure of investors.
This is considered a large group investment fund and the total and consistent returns might not be as high as others out there, but for its purpose, it does well. This type of slow and steady growth is great when you’re planning for retirement in the future rather than looking for an aggressive option to earn you cash in the next couple of years.
However, Morningstar rates this fund as having above average fees which aren’t advantageous when you’re looking for an income fund. Although it has solid returns and is considered low risk, having to pay higher fees than the regular income fund is a turn off. Considering there may be other options out there that suit your retirement goals, you could save some money by switching to a cheaper one.
Another potential downside is that the lead manager of this fund has only been in place since October 2020 and the others began in July, 2021, even though the fund itself was created in 2008. While that doesn’t mean they have no experience, jumping into a retirement fund that claims to be one of the best mutual funds for retirement income and seeing that it’s being led by a newcomer can be a little nerve-wracking.
Invesco Income Advantage US Fund is a top pick for a steady retirement income fund and although it has some disadvantages to weigh up, the news is mostly good. You’ll be part of an actively managed fund that aims to pay you long term growth of capital and steady income, all while investing in US-based securities. If you want a reliable way to earn a paycheck when you retire, SCAYX is a safe bet.
Alternative #1: iShares High Dividend Growth
The High Dividend Growth fund (HDV) from iShares is classed as an exchange traded fund, and its focus is on US equities that pay high dividends.
When looking for the best fixed income funds for retirement, something like this that gives you access to a blue-chip portfolio of quality American companies with $7.31 billion in net assets is the way to go.
An exchange traded fund like HDV is becoming a popular choice for retirees looking for something reliable to give them an income into the future. These ETFs will enable you to continue earning money without having to keep an eye on a portfolio yourself, and they’re starting to gain more traction. If you want to stay ahead of the pack, an option like this iShares High Dividend Growth is ideal.
Another bonus of this fund is that it’s low risk and with one look at the major holdings of the fund, you can see why. Popular names and top performers like Exxon Mobile Corp, Johnson & Johnson, and Verizon Communications Inc are just part of their 75 holdings, so you’re not taking a gamble on anything unknown and all of their investments are deemed as financially healthy.
HDV is rated very well for pricing which means low fees for its members and less of your dividends being eaten up by ongoing costs. If you’re on the hunt for a fund that pays steadily and slowly without taking too much of your hard earned money, iShares is one of the more economical options.
On the negative side of things though, dividends are paid quarterly from the High Dividend Growth Fund, and if you’re looking for a regular income source, this might not be ideal. While you shouldn’t be solely relying on an income fund to be your only hope, having dividends paid monthly like most other funds offer would have been a better deal.
Some fund members also noted that iShares High Dividend Growth Fund wasn’t very diverse in its holdings, which could make members uneasy. As a fund that’s focused on US companies with good financial health, there’s not a lot of room for risk which means the payoff might not be as high. Furthermore, if the market suffers a crash and these types of businesses suffer a hit, your entire portfolio in this fund will pay for it.
The iShares High Dividend Growth Fund is a good choice for an EFT if you want a steady retirement income. As a low risk option and a focus on investments in leading US companies, there’s very little that can go wrong, even if it’s not one of the most diverse funds out there. For a future retiree looking for a steady income during their golden years though, HDV is one of the best.
Alternative #2: SPDR Blackstone Senior Loan ETF
The SPDR Blackstone Senior Loan ETF (SRLN) is a unique fund that makes its money by investing the majority of its net assets in Senior Loans, including senior secured floating-rate bank loans that are below investment grade.
In doing this, the Blackstone Senior Loan ETF hopes to outperform the major loan indexes and pay out dividends to members. Their current assets equal $7 billion and their top holdings include Lower Cadence Holdings LLC and Change Healthcare Holdings LLC.
As an actively managed fund, you’ll feel peace of mind that your money is looked after with SRLN, and by a team of senior managers with a lot of experience in this area. This means they will take care of managing risks so that you don’t have to, and if your plan is to retire and earn money by doing as little as possible, the Blackstone Senior Loan ETF will be very appealing to how you want to spend your golden years.
This is a better option for those with smaller amounts to invest, as larger investors might need to work a little harder to see their money multiplying. For the average retiree who doesn’t want to take too much of a gamble with their life savings, it’s a safe way to do it and the fees are relatively low which means you’re not throwing your dividends away on these ongoing costs.
This is another income fund that isn’t as diverse as it could be, and although this could be seen as a plus for those interested in loans, it’s not ideal for everyone As the Blackstone Senior Loan ETF has at least 80% of its focus on this area and not much else, there isn’t a lot of variation. If something happens in this market then, the entire ETF will take a hit.
In addition, it’s seen as a higher risk option, which might not appeal to every type of retiree investor. If you have a lot more time left at work and are trying to set up an income fund with some notice, this higher risk has a chance to pay off with better dividends, but for those looking to start earning sooner rather than later, it can be hazardous.
The SPDR Blackstone Senior Loan ETF is a smart way to earn an income during retirement, but there are some risks to be aware of before you jump in. However, ETFs like this one with a specific focus on senior secured floating rate bank loans have the potential to do very well, so you’ll have to weigh up the risk versus reward ratio and see if it’s a good fit for your portfolio.
Alternative #3: Federated Hermes Opportunistic High Yield Bond
The Opportunistic High Yield Bond Fund (FHYTX) by Federated Hermes is one of the oldest income funds available, and a solid choice for a retiree looking to the future.
The funds’ YTD return is 5.41% and it holds a five star return rating which makes it a popular one, focusing on fixed income securities that are below investment grade. With over 80% of its holdings in bonds, and the rest scattered across stocks and cash, it’s slightly risky but with a good payoff in the long term.
One of the best things about this fund is that it’s been around for a lot longer than others, and this type of stability that Federated Hermes is what a retiree looks for when planning their future. The Opportunistic High Yield Bond Fund had its inception in 1984 and is still going strong today, which tells you their management style has been right on the money.
The key investment team is another advantage of becoming a member of this fund, with one of their managers being with Federated since 1982. As an actively managed fund, they stay on top of things so you don’t have to. If your goal for retirement is to not have to watch and analyze your stocks and markets, having experienced managers like the team at Federated do it for you is a nice feeling.
However, their portfolio consists of bonds in areas like entertainment, cable satellite, midstream, and technology, so it’s not that diverse. They were negatively impacted in recent years because they had too much of their assets allocated to Packaging and Pharmaceuticals, which means dividends took a greater hit than usual. There was some criticism that they could have invested more in technology, and as an actively managed fund, they took this on board for the future.
This fund from Federated Hermes has one of the smallest pools of assets which could be seen as either a good or bad thing, whichever way you look at it. For the purpose of a retirement income fund, it’s pretty small though, with a current asset pool of around $737 million which doesn’t come close to the billions some other funds are investing with. When you add to this the higher risk rating that FHYTX has, it might make it even less appealing.
The Opportunistic High Yield Bond by Federated Hermes has goals for income and growth, which makes it a perfect fit for anyone looking to retire in the near future and still have a stable salary to rely on. Although it misses the mark sometimes by not diversifying, it’s been in business for close to 40 years and has many loyal members that can attest to its dependability.
Income Funds For Retirement FAQs
An income fund can provide you with enough money to live comfortably when you retire, or just enough to supplement your other income streams.
If you’re brand new to investing for retirement, we’ve answered some FAQs that can give you the basics you need to get prepared for your future.
Are Income Funds Good For Retirement?
An income fund is a smart option for earning money during retirement, and these funds are actively managed so they can pay regular income to their members.
These types of funds are ideal for people who want just one investment solution that can do it all, or they can be used as a part of an investment portfolio.
What Is The Best Portfolio For Retirement?
A smart portfolio for any age is a diverse one, but as you grow closer to retiring, these investments may need to be adjusted.
Assessing your investments for risk tolerance and financial goals should be done regularly to ensure they’re meeting your needs. When you’re nearing retirement age, these goals should be investments that provide a steady income stream.
Where Should I Put Retirement Money Now?
The best place for retirement money is in a retirement account that offers tax advantages, like a 401(k), if your employer offers it.
Otherwise, starting a retirement account independently, like an IRA, is a smart way to benefit from tax breaks and ensure that your money continues to grow until you’re ready to retire.
How Much Do I Need To Invest To Make 3000 A Month?
The amount of money needed to make $3,000 a month depends on the type of investments made and how they perform, but you can expect to invest at least $300,000 for this to happen.
For a better chance of earning $3,000 a month, you’ll want a diverse portfolio that might include real estate investments, stocks and bonds, funds, and purchasing an online business that generates passive income.
Stability and Security For Retirement
A carefully chosen income fund can be your gateway to financial comfort when you retire, and all without having to work for your money.
Our recommendations for the best income funds span all types, including mutual and bond, so you’re guaranteed to find one that suits your financial goals.