Any mutual fund that delivers regular income payments can be a retirement income fund. Dividend funds, balanced funds and bond funds are three compelling income options, although there are a range of other fund types that can provide retirees with cash flow.
Arranging a dependable stream of income is a key part of your retirement plan. Income should come from multiple sources, like Social Security, personal savings, annuities and even part-time work. Mutual funds that generate regular cash flow—so-called retirement income funds—can also play a big role.
A balanced fund owns a portfolio that includes both stocks and bonds. The fund aims to balance its potential growth by owning stocks with the stability and income generation of fixed-income assets.
Balanced funds have a target allocation between stocks and bonds, which is usually stated in the fund’s prospectus. The allocation can vary depending on the fund’s objectives and strategy. A very common target allocation is 60% stocks and 40% bonds.
Bond mutual funds own fixed income assets, like government bonds, corporate bonds, municipal bonds, or a combination of these. When you invest in a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
By investing in a broad portfolio including hundreds or even thousands of assets, bond funds spread your investment risk across different issuers, sectors, maturities and credit ratings. By holding a diversified portfolio, managers reduce the impact of any individual bond’s performance on the overall fund.
Dividend Funds
A dividend fund owns the stocks of companies that regularly pay dividends to their shareholders. They aim to generate income from the dividend payments, and also deliver increased value from capital appreciation of the stocks.
Public companies that pay dividends are typically mature and stable firms with a history of consistent payouts. Dividend funds often target stocks with relatively higher dividend yields, seeking to provide investors with attractive income potential.
Ideally, you'll choose a mix of stocks, bonds, and cash investments that will work together to generate a steady stream of retirement income and future growth—all while helping to preserve your money.
Morningstar gives many of Vanguard's funds a five-star rating—the highest rating possible from Morningstar's rating system. The Vanguard Wellesley Income Admira allocates over half its assets to a broad mix of bonds. The Vanguard Tax-Managed Balanced Fund Admiral Shares allocates nearly half of its assets in stocks.
Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.
If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.
Certificates of deposit (CDs) are a very safe place for your retirement money. For starters, they are FDIC insured (as long as you take them out from an FDIC member bank), so your money is protected up to $250,000 per account holder per bank. CDs are also a good option for earning a high annual percentage yield (APY).
Money market accounts, certificates of deposit, cash management accounts and high-yield savings accounts all carry FDIC insurance. Treasury bills, notes and bonds are backed by the U.S. government, making them another low-risk investment option.
The best SIPP fund for retirees in the UK is the Vanguard LifeStrategy 20% Equity Fund—especially for retirees in the UK looking for a low-risk investment option.
Top performing investment funds owned by Vanguard worldwide 2024, by one-year return. As of May 2024, the Vanguard Communication Services Index Fund provided the highest one-year return rate. The Vanguard Mega Cap Growth Index ranked second having a one-year return rate of 37.4 percent.
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