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Income Funds in Retirement


Retirement is when you want to secure a steady stream of investment income to replace your paycheck. Income mutual funds and ETFs are one answer to this problem. They are designed to provide income over capital appreciation.

Income funds can invest in bonds and/or stocks. Some income funds invest in high-yield bonds (known as junk bonds). Others invest in real estate investment trusts (REITs) along with stocks and bonds.

Income funds will differ in performance based on their underlying investments. Funds that invest in high-yield bonds or REITs will have more volatility than those that invest in investment-grade bonds and dividend stocks.

Traditionally, income funds concentrated on investment-grade bonds and dividend-paying stocks. The shift to riskier investments in income funds has occurred due to the low interest rate environment. Low rates on bonds have reduced the income that the funds can pay out.

Be careful of income funds that invest in these riskier bonds and REITs. They have a greater chance of bigger losses when interest rates rise. It is advisable to concentrate on the funds that stick to more conservative bonds and stocks.

The goal of any income fund is to provide income. Be sure to read the prospectus of any funds you are considering. Some income funds only pay out occasionally. Most pay out consistently, usually once a month for bond funds or every quarter for stock funds. Determining payout will help you determine if the fund is right for your income timing needs.

The prospectus will have the list of holdings that the fund has bought. It will state its goals for the fund. Read these to make sure they are in line with your investing style. You don't want to choose a fund that invests more aggressively if you are looking for steady and conservative income.

Some income funds to consider are:

Vanguard Wellesley Income Fund
Vanguard Dividend Appreciation Fund
Dodge and Cox Income Fund
Pimco Bond Fund
Pimco Income Fund

It is wise to choose an income fund with a low expense ratio. This will leave more income for your retirement needs. You want to avoid paying sales charges as well. There are many funds available to meet your needs. Some invest solely in bonds. Some only invest in dividend-paying stocks. Others invest in a mix of stocks and bonds.

Replacing a paycheck is a big concern when retiring. Income funds can provide much needed income in retirement. Do a little research and you should be able to find one that meets your needs.


Are you interested in a simple portfolio to save for retirement? Please check out my book on building a simple retirement portfolio that is available at Amazon.com:
Investing $10K in 2014 (Sandra's Investing Basics)

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Content copyright © 2014 by Sandra Baublitz. All rights reserved.
This content was written by Sandra Baublitz. If you wish to use this content in any manner, you need written permission. Contact Sandra Baublitz for details.

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