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Income-Generating ETFs for a Long Retirement


U.S. life expectancy has hit a record high. As advances in medicine help Americans live longer, investors seeking to finance their golden years could turn to income-generating exchange traded fund strategies.

In 2012, life expectancy in the U.S. touched a record 78.8 years, a 0.1% increase from 2011, reports Larry Copeland for CNBC. Life expectancy for women is 81.2 years, whereas men show an average life expectancy of 76.4 years.

Jiaquan Xu, a medical doctor and lead author of the report on mortality, explained that the 78.8 year expectancy is a projection for those born in 2012 and accounts for infant mortality and teen mortality, which are higher than older individuals.

Looking at those who were 65 years old in 2012, the average life expectancy was 19.3 years, or 20.5 years for women and 17.9 years for men.

“I think the health of the U.S. population is improving,” Xu said in the article. “The death rates for heart disease and cancer, the two leading causes of death that account for 46.5% of all deaths, have been falling since 1999.”

With retirees living longer, it is important to include conservative assets that generate a steady flow of cash in one’s investment portfolio.

For example, the iShares Core U.S. Aggregate Bond ETF (AGG) and Vanguard Total Bond Market ETF (BND) both provide a broad, diversified approach to the fixed-income market. Both ETFs include thousands of fixed-income investment-grade securities, ranging from U.S. Treasuries, mortgage-backed securities, Agencies and corporate bonds. AGG has a 0.08% expense ratio and a 2.01% 30-day SEC yield while BND has a 0.08% expense ratio and a 2.14% 30-day SEC yield. However, potential investors should be aware that while they will still issue cash on a regular basis, the funds may see some price depreciation in a rising rate environment.

Investors can also look into the equities space for quality dividend-producing stock ETFs. The Vanguard Dividend Appreciation ETF (VIG) provides exposure to high-quality stocks with steady income growth, tracking stocks that have raised their dividends for at least 10 consecutive years. For an even greater take on quality, the SPDR S&P Dividend ETF (SDY) targets 50 highest-yielding stocks that have raised their dividends for every year over the past 25 consecutive years. VIG has a 0.10% expense ratio and a 1.98% 12-month yield. SDY has a a 0.35% expense ratio and a 2.29% 12-month yield. [Different Strokes With Dividend ETFs]

Alternatively, multi-asset ETFs target a group of income-generating equity and bonds. However, these portfolios are slightly more riskier due to their heavy emphasis on higher yield generation. For instance, the iShares Morningstar Multi-Asset Income Index ETF (IYLD) and First Trust NASDAQ Multi-Asset Diversified Income Index Fund (MDIV) both include exposure to junk bonds and real estate investment trusts. IYLD has a 0.60% expense ratio and a 5.78% 12-month yield. MDIV has a 0.68% expense ratio and a 5.76% 12-month yield. The two ETFs also have the benefit of issuing yields on a monthly basis. [Alternative ETF Investments with Monthly Dividends]

For more information on investing toward retirement, visit our retirement category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.