9 Best Retirement Income Funds Of 2024

The American Funds Tax-Aware Conservative Growth and Income Portfolio F1 is a great option for retirees who want an all-in-one growth and income fund. This Morningstar gold star-rated fund aims to provide appreciation and income, a portion of which is exempt from federal income tax.

TAIFX is a fund-of-funds that holds positions in six other mutual funds. TAIFX posts an asset mix of roughly 35% in U.S. stocks, approximately 12% in foreign stocks, about 45% in U.S. fixed income and about 8% in cash equivalents. For a retiree in their sixties, a stock weighting of nearly 50% is aggressive, based on the traditional rule of thumb that says your stock weighting should equal 100 minus your age. In this case, that would call for a 40% stock weighting. In an era of long lifespans, many experts recommend even higher equity weightings for many retirees who have moderate or high risk tolerance.

TAIFX makes quarterly dividend payments and has a $250 minimum initial investment, giving investors easy access and dependable cash flow. TAIFX has outperformed its Morningstar category average over the past one, three, five and 10 years.

The Schwab Balanced Fund offers a mix of U.S. and international stocks, plus U.S. fixed income assets. This balanced fund’s portfolio has more exposure to small-cap and growth stocks than other options on our list, offering more risk for a better shot at capital gains. Plus, there’s no minimum required investment to get started.

SWOBX is a fund of funds, with a portfolio that owns shares of six large-cap Schwab funds. SWOBX posts allocations of roughly 35% to fixed income, roughly 50% to U.S. stocks and roughly 10% to foreign stocks. About 3% of SWOBX is parked in cash.

The fund has outperformed its Morningstar category average over the last one-, five-, 10-, and 15-year periods. Retirees or conservative investors seeking a zero-minimum balanced fund for a taxable brokerage account ought to look at SWOBX.

Vanguard Wellington is the oldest balanced mutual fund out there, originally launched in 1929. This actively managed fund tends to allocate up to 70% of its portfolio to stocks and the remainder to bonds. Fund managers focus on high-quality, large-cap companies that have a dependable history of dividend growth.

Currently, VWELX’s portfolio is roughly 65% stocks, 33% bonds and the remainder in cash equivalents. The fund’s roughly 80 stocks and more than 1,200 bonds span all market sectors. The fund’s expense ratio is pretty low for an actively managed fund.

Launched in 1989, the Dodge and Cox Income Fund is an actively managed bond fund with a gold-star rating from Morningstar. This is truly a bond-pickers fund, with a portfolio that focuses on investment-grade government, agency, corporate and municipal bonds.

DODIX currently owns more than 1,300 issues, with an average effective duration of 5.72 years. The portfolio sees an annual turnover rate around 120%, and the fund has outperformed its Morningstar intermediate core-plus bond fund category average over the last one-, three-, five-, 10- and 15-year periods.

High-yield debt is frequently maligned by the label junk bonds. But high-yield debt can be a reasonable addition to a diversified retirement income portfolio for aggressive investors. The PGIM High Yield Fund aims to maximize income by owning low-credit-rated debt.

PHYZX’s managers are supported by a team of approximately 50 experienced leveraged-finance analysts. They seek out strong companies with moderate financial health. Only about 15% of the portfolio’s approximately 700 bonds are rated investment grade. The rest are below investment grade, not rated or cash. The overall portfolio has an average effective duration of less than four years.

Generally, for every one percentage point change in interest rates, a bond fund will rise or fall in the opposite direction by an amount equal to its duration number. The price of a bond fund with a duration of four years, for example, typically falls 4% if interest rates rise 1%.

PHYZX has no minimum investment requirement, a moderate annual fee and an outstanding dividend yield. It has outperformed its Morningstar peer group over the last one-, five-, 10- and 15-year periods. Fixed income investors seeking higher returns and comfortable with risk should consider PHYZX.

Dividend stocksare a staple of retirement income investing, since they deliver both income and capital appreciation. The T. Rowe Price Dividend Growth Fund is an actively managed fund that takes a conservative approach to dividend investing, earning it a Morningstar gold-star rating.

PRDGX seeks out dividend stocks with strong performance and low price volatility. Its ideal company offers competitive advantages, strong cash flows and a shareholder-friendly management team. The fund owns around 100 stocks with above-category momentum and growth. Its average annual total return over the past 10 and 15 years topped its Morningstar large-cap blend category’s average.

Every well diversified investment portfolio should own an international stock fund. One benefit of international companies is that they tend to pay high dividends. The Schwab International Index Fund tracks the MSCI EAFE Index, which represents the performance of large- and mid-cap stocks across 21 developed markets in Europe and Asia.

SWISX owns roughly 800 equities. By avoiding small-cap and developing companies, SWISX offers investors a conservative allocation to the most important international dividend stocks.

Wealthy investors with a long time horizon might appreciate the Vanguard Long-Term Tax-Exempt Fund. Income from this actively managed fund is free from federal personal income taxes. VWLTX invests in municipal bonds with maturities between 10 and 25 years. Just remember, investors should expect greater volatility than in a comparable intermediate- or short-term muni bond funds.

Currently, VWLTX owns more than 3,000 bonds with an average coupon rate of 4.32%, per fund literature, and average effective duration of about 8 years. Roughly 85% of the VWLTX portfolio has a credit rating of are rated AAA, AA or A. VWLTX is allowed to have up to 5% of its bonds rated below BBB by Standard & Poor’s or unrated.

Retirees who need their investment portfolios to generate regular income payments should own either a short-term bond or money market mutual fund. The BBH Limited Duration Fund offers broad exposure to the U.S. bond market, with an average duration of less than one year. This means the fund holds very short-term bonds. That allows investors to benefit from the current rising interest rate market environment.

BBBMX is an actively managed fund that has stood the test of time during choppy bond markets. More than 80% of the fund’s holdings are investment grade bonds rated BBB or better. The fund’s average annual total return has outperformed its Morningstar peer group average over the last one-, three-, five-, 10- and 15-year periods.