Retirement Planning Bull’s Eye: 5 Funds That Generate $100,000 Retirement Income


For many retirees, $100,000 of annual retirement income is their holy grail. Many people in or near retirement see a six-figure income as the culmination of successful retirement planning.


But how doable is it? And let’s cut to the chase. What people really want to know is: Can you generate $100,000 of retirement income without cannibalizing your savings?

Answer: With proper retirement planning, totally doable.

Check the numbers. Start with your retirement savings balance. How large must your nest egg be?

Retirement Planning Goal: Americans Aim For $1.9 Million

Americans on average think they need $1.9 million to retire, according to a study by Charles Schwab. And nearly 40% of people polled say they are very likely to reach that retirement planning goal. Another 49% say they are somewhat likely to amass that much savings.

So with proper savings, people think it’s a reasonable bet for them to save $1.9 million for retirement.

How to do it? You already know the drill:

  • Start saving early.
  • Save 10% to 15% of your pay, including any company contribution.
  • Invest your money in an age-appropriate way, which means investing 100% stocks when you’re young and investing in lots of stocks even as you get older.

This other IBD report explains how much stocks and stock funds to invest in as you age.

Retirement Planning Strategies That Can Provide $100,000 Annual Retirement Income

One key question is how to generate $100,000 a year of retirement income without eating into your $1.9 million of retirement savings.

The first part of the answer: remember, some of your income will come from Social Security.

A worker who is 64 years old — the average U.S. retirement age — earning $136,000 would be entitled to $32,000 in annual Social Security benefits.

That’s if they wait until Social Security’s full retirement age of 66-1/2, according to the Social Security Administration’s quick calculator. $100,000 of annual retirement income would be 74% of the worker’s preretirement income.

That’s one payoff from good retirement planning. Many advisors tell clients they should aim for 70% to 80% of their preretirement income once they stop working.

Retirement Savings Payoff: Advisors Recommend These Funds

So, how do you squeeze an additional $68,000 a year from your nest egg? That much income from $1.9 million would be a yield of 3.58%. Can good retirement planning lead you to mutual funds and ETFs that provide that much yield without taking on excessive risk?

Top financial advisors say yes. And they offer recommendations.

In fact, at the moment their recommendations generate $68,590 to $88,920. Each recommendation means your yearly retirement income would top $100,000.

Weigh Risk Vs. SPY

One way to assess volatility and the risk of funds is to weigh a fund’s three-year standard deviation (SD). Suppose a fund’s three-year average annual return is 15%. An SD of, say, 10 means that 68% of the time over any three-year period, that fund’s return should be between negative 5% and 25%.

Compare that, for example, to SPDR S&P 500 ETF (SPY), which tracks the big, popular broad market index. Its trailing 12-month yield (TTM) is 1.33%, as of June 8, per Its three year average annual return based on price is 17.14%. Its three-year SD is 18.49%.

Dividing your retirement portfolio among several funds like the ones recommended by advisors we queried would be a way to diversify and dilute risk. It would be smart retirement planning.

ZEO Fund Mixes Investment Strategies

ZEO Short Duration Income Fund (ZEOIX): „This fund is a short-duration, actively managed high-yield fund that focuses on special situations and delivers higher-than-average dividends against a backdrop of playing some defense,“ said Paul Schatz, president of Heritage Capital.

The fund manager finds undervalued, misunderstood and special situation high-yield bonds that are often mispriced to achieve high yields, Schatz says. Its returns have been positive in roughly 85% of the months from May 31, 2011 trough March 2021, he adds.

The potential retirement planning risk to this fund is that when the high-yield market experiences a period of illiquidity like March 2020’s, many of the ugly duckling bonds it holds become difficult to price and trade, Schatz says.

Still, shorter duration high-yield funds have lower risk because they can sell bonds whose prices plummet during a pullback, Schatz says.

  • 12-month yield: 4.21%
  • Yield in dollars on a $1.9 million balance (compare to goal of $68,000): $79,990
  • Trailing 1-year total return: 7.01%
  • 3-year avg. ann. return: 3.07%
  • 3-year standard deviation: 7.04

Invesco Fund: ‚A Solid Choice‘ For Retirement Planning

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)„A fund that I think does a good job of achieving dividend yields above 3.58% while maintaining relatively non-excessive risk is SPDH,“ said Michael Kelly, president of Switchback Financial. „It’s a solid choice.“

Its dividend is higher than the 3.58% target. Still, its three-year standard deviation of 20.6% is slightly higher than SPY’s. Kelly considers its expense ratio of 0.3% „decent.“ SPY charges just 0.095%. „The positive factor of this fund is it does not let any sector represent more than 10 of the 50 holdings,“ Kelly said. „The one knock is that it’s a bit heavy on REITs and utilities, which can be sensitive to interest rates.“

  • 12-month yield: 3.85%
  • Yield in dollars on a $1.9 million balance (compare to goal of $68,000): $73,150
  • Trailing 1-year total return: 31.49%
  • 3-year avg. ann. return: 9.05%
  • 3-year standard deviation: 20.6

Role That HDV Fills In Your Retirement Planning

IShares Core Dividend ETF (HDV)„What I like about this fund is its low expense ratio of 0.08% and its focus on holding firms with above-average financial health,“ Kelly said. „It is a bit concentrated. Its top-10 holdings make up 55% of its 79 firms. But as they are generally megacap Blue-Chip stocks, it’s not overly concerning.“

  • 12-month yield: 3.61%
  • Yield in dollars on a $1.9 million balance (compare to goal of $68,000): $68,590
  • Trailing 1-year total return: 15.82%
  • 3-year avg. ann. return: 8.9%
  • 3-year standard deviation: 18.71

Long-Time Retirement Planning Favorite

Federated Hermes Opportunistic High Yield Bond Fund (FHYTX): Greg Zandlo, president of North East Asset Management, likes this fund’s performance. In the past 15 years, for example, the fund’s 7.66% average annual total return has outpaced 97% of its high-yield bond fund peers tracked by Morningstar Direct, going into Tuesday.

Zandlo also likes the fund’s management continuity. Mark Durbiano has been on the job since mid-1984. Gene Neavin, its other manager, has been at the helm since early 2011.

Still, the fund’s 0.98% annual expense ratio is pricey, Zandlo says. And as interest rates crept up earlier this year, Zandlo trimmed his stake in this fund. „But the Fed can’t raise rates too much now,“ he said.

Besides, the fund’s average duration is just 3.1 years. That relatively short duration means the fund isn’t locked into a lot of long bonds whose prices are likely to fall a lot if rates rise and keep rising. „In the current environment, that’s almost a perfect duration,“ Zandlo said.

  • 12-month yield: 4.01%
  • Yield in dollars on a $1.9 million balance (compare to goal of $68,000): $76,190
  • Trailing 1-year total return: 16.01%
  • 3-year avg. ann. return: 7.52%
  • 3-year standard deviation: 10.73

Retirement Planning Protection Against Rising Rates

SPDR Blackstone Senior Loan ETF (SRLN): This ETF invests in senior secured first lien floating rate loans. Their interest is variable. It is often the Libor benchmark interest rate plus a specified spread. Their payouts rise if their benchmark rates climb. And the „loans typically have minimum floors to protect investors from rates falling much lower than anticipated,“ said Bryan Lee, chief investment officer, Blue Zone Wealth Advisors.

Lee likes the fund’s managers. „Blackstone managing the underlying portfolio of 273 credits gives you access to one of the best liquid credit managers on Wall Street,“ he said.

Still, one risk is that if rates rise faster than expected, the underlying borrowers can get hit with higher interest expenses. That can hurt credit ratings. Another drawback: the 0.7% expense ratio is relatively high for a fixed-income ETF, Lee says.

  • 12-month yield: 4.68%
  • Yield in dollars on a $1.9 million balance (compare to goal of $68,000): $88,920
  • Trailing 1-year total return: 10.04%
  • 3-year avg. ann. return: 4.43%
  • 3-year standard deviation: 7.76

Retirement Income: No Such Thing As Free Lunch

What’s left for investors who are lining up their retirement income to know? Just because funds are judged to be free from excessive risk does not mean they are risk-free. For instance, REIT (real estate investment trust) prices can fall amid rising rates. Why? Today’s fixed income stream can look increasingly unattractive if rates in the near future will be even higher. And high-yield bonds can entail greater risk of default. „Always weigh risk and reward in the form of yield,“ Zandlo said.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.


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