These days, there are plenty of rumors flying about Social Security going away completely. Thankfully, they’re just rumors. But there’s some truth behind them in that Social Security is experiencing a financial crisis lawmakers desperately need to address.
Social Security gets most of its funding from payroll taxes. For this reason, the program is not at risk of going away completely. But benefit cuts are a huge possibility.
The exact timing of potential cuts is subject to change and hinges on factors like how much revenue Social Security gets in the coming years and whether lawmakers agree to combine the program’s two trust funds or keep them separate. But either way, it’s a good idea to plan for Social Security cuts within the next 10 years.
This means that if you only have about another decade left in the workforce, it may be time to start coming up with a strategy to supplement your Social Security checks in retirement. And in that regard, ETFs, or exchange-traded funds are a great option.
The nice thing about ETFs is that they allow you to invest in a pool of different assets with a single investment. But if you’re going to invest in ETFs to supplement your Social Security, you need to do a couple of things:
- Make sure you’re taking on an appropriate amount of risk
- Make sure you’re buying into a fund with a decent yield
With that in mind, here are three ETFs you may want to consider if you’re worried about Social Security cuts and want income to make up for them.
1. The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) tracks the S&P 500 Low Volatility High Dividend Index. In other words, it invests in established companies with strong dividend yields, but then filters volatile stocks out for more stability.
SPHD could be a good ETF for retirees because its goal is to provide steady income without too much risk. The fund also pays dividends monthly, which is ideal for budgeting in retirement.
2. The Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) tracks the performance of U.S. companies that pay above-average dividends. It invests in established companies across a range of industries to avoid concentration risk in a single sector.
VYM could be a good option for retirees because it offers the potential for steady income at a low cost. In fact, Vanguard is known for its low expense ratios, so if this particular Vanguard fund doesn’t seem right for you, there are others you can explore.
For example, you may want an ETF that pays monthly, whereas VYM pays quarterly. Vanguard has other funds that fit that bill.
3. The JPMorgan Equity Premium Income ETF (JEPI)
For retirees with a healthy appetite for risk, the JPMorgan Equity Premium Income ETF (JEPI) could be a good bet. JEPI invests in large-cap U.S. stocks, but it also sells covered calls against its holdings to generate income.
JEPI also pays investors on a monthly basis, which could be helpful for retirees in particular looking for steady income. However, investors in JEPI should be aware that the fund itself may not gain as much value over time as other ETFs due to its call option strategy. And, like any stock-focused ETF, it can be subject to volatility.