9 Best Retirement Income Funds

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The Best Retirement Income Funds

American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIFX)

American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIFX)

Expense Ratio

0.70%

Distribution Yield (as of March 5)

1.96%

10-Year Return (as of March 5)

8.14%

0.70%

1.96%

8.14%

Editor's Take

American Funds Tax-Aware Conservative Growth and Income Portfolio (TAIFX) is designed for investors seeking a more conservative approach to growth while managing tax liability. The fund’s focus on tax efficiency makes it particularly appealing for those in higher tax brackets or anyone looking to preserve capital without sacrificing income potential.

TAIFX pays quarterly dividends and requires an initial investment of $250, providing investors with easy access and dependable cash flow. As a fund of funds, TAIFX holds positions in several other funds. A few of those holdings include the Capital Group Municipal High-Income ETF (CGHM), Capital Group Dividend ETF (CGDV) and Capital World Growth and Income Fund Class R-6 (RWIGX).

Schwab Balanced Fund (SWOBX)

Schwab Balanced Fund (SWOBX)

Expense Ratio

0.51%

Distribution Yield (as of March 5)

1.96%

10-Year Return (as of March 5)

8.99%

0.51%

1.96%

8.99%

Editor's Take

Schwab Balanced Fund comprises both domestic and foreign stocks, U.S. fixed income, cash and cash equivalents, with investments in other funds. Around three-quarters of the fund is invested between three core funds: Schwab US Aggregate Bond Index (SWAGX), Schwab Core EQT (SWANX) and Schwab Select Large Cap Growth (LGILX).

The fund’s objective seeks “to provide growth opportunities of equity investing with the income opportunity of fixed income securities.” SWOBX boasts a relatively low turnover rate of just under 12%.

Vanguard Wellington Fund Investor Shares (VWELX)

Vanguard Wellington Fund Investor Shares (VWELX)

Expense Ratio

0.25%

Distribution Yield (as of March 5)

2.05%

10-Year Return (as of March 5)

10.12%

0.25%

2.05%

10.12%

Editor's Take

Vanguard Wellington Fund Investor Shares has long been a favorite for conservative investors. Around 60% of its funds are invested in stocks, while the remainder is allocated to bonds and cash. The managers of this fund focus on investing in high-quality, large-cap companies with a steady history of growth.

The minimum initial investment for the Vanguard Wellington Fund is $3,000, which is a bit higher than some of the other funds on our list. But the fund’s low expense ratio and long-term consistency make the higher investment minimum worth a look.

Dodge and Cox Income Fund (DODIX)

Dodge and Cox Income Fund (DODIX)

Expense Ratio

0.41%

Distribution Yield (as of March 5)

4.14%

10-Year Return (as of March 5)

3.47%

0.41%

4.14%

3.47%

Editor's Take

Dodge and Cox Income Fund focuses primarily on investment-grade corporate and government bonds. Its composition helps provide stability and a consistent income for investors. DODIX’s investment choices, combined with its long-term strategy, make it a reliable option for those seeking lower portfolio volatility. That makes it ideal, particularly for retirees or conservative investors.

DODIX boasts a low turnover rate of 14%. While this means the fund doesn’t deliver crazy-high annual returns, it does benefit from higher average yields than some of its peers. The minimum investment for the fund is $2,500. But that minimum is substantially reduced to $1,000 if invested in an individual retirement account (IRA).

PGIM High Yield Fund (PHYZX)

PGIM High Yield Fund (PHYZX)

Expense Ratio

0.51%

Distribution Yield (as of March 5)

6.91%

10-Year Return (as of March 5)

6.43%

0.51%

6.91%

6.43%

Editor's Take

PGIM High Yield Fund can be a suitable choice for income-focused investors who are comfortable with added volatility in exchange for higher yields. The fund has no minimum investment requirement, a moderate annual fee, and an outstanding average yield.

PGIM High Yield Fund’s strategy is to invest primarily in high-yield bonds rated B1 or lower by Moody’s or BB or lower by Standard & Poor’s. They seek strong companies with good financial health. A significant portion of the fund’s holdings, around 30%, are invested in credit quality assets of B or lower. This approach does introduce higher risk while offering the potential for stronger returns, especially in favorable market conditions.

T. Rowe Price Dividend Growth Fund (PRDGX)

T. Rowe Price Dividend Growth Fund (PRDGX)

Expense Ratio

0.64%

Distribution Yield (as of March 5)

0.87%

10-Year Return (as of March 5)

13.12%

0.64%

0.87%

13.12%

Editor's Take

The T. Rowe Price Dividend Growth Fund is a large blend fund that focuses its investments on high-dividend stocks and long-term capital growth. This is accomplished by investing in large, successful companies like Microsoft and Apple. More than 90% of the fund’s assets are invested in U.S.-based companies, and typically 65% of its assets are invested in stocks.

The fund owns over 90 stocks, with exposure to a large-cap blend in value and growth. Its average annual total return over the past 15 years topped Morningstar’s large-cap blend category.

Schwab International Index Fund (SWISX)

Schwab International Index Fund (SWISX)

Expense Ratio

0.06%

Distribution Yield (as of March 5)

3.23%

10-Year Return (as of March 5)

9.37%

0.06%

3.23%

9.37%

Editor's Take

For a well-diversified portfolio, investing in international stock funds is a must. Schwab International Index Fund tracks the performance of the MSCI EAFE, an index that tracks the returns of large companies based outside the U.S., such as those in Europe, Australia and Asia. Plus, the exceptionally low expense ratio means you pocket a bigger chunk of the returns.

By investing in companies across multiple regions and industries, the fund reduces reliance on the U.S. market and provides opportunities for growth in global economies.

Vanguard Long-Term Tax-Exempt Fund (VWLTX)

Vanguard Long-Term Tax-Exempt Fund (VWLTX)

Expense Ratio

0.17%

Distribution Yield (as of March 5)

3.60%

10-Year Return (as of March 5)

2.70%

0.17%

3.60%

2.70%

Editor's Take

The Vanguard Long-Term Tax-Exempt Fund is an actively managed fund focused on municipal bonds with longer durations. Currently, VWLTX owns more than 3,900 bonds with an average coupon rate of 4.2%, per fund literature, and an average duration of about 8.4 years. Like many Vanguard funds that are for retail investors, the minimum investment is $3,000.

Most bonds that this Vanguard fund invests in are rated AAA, AA or A. That means the fund primarily holds high-quality bonds with low default risk. This focus on creditworthy issuers makes the Vanguard Long-Term Tax-Exempt Fund a strong option for investors seeking steady, tax-free income with minimal volatility.

BBH Limited Duration Fund (BBBMX)

BBH Limited Duration Fund (BBBMX)

Expense Ratio

0.35%

Distribution Yield (as of March 5)

4.57%

10-Year Return (as of March 5)

3.45%

0.35%

4.57%

3.45%

Editor's Take

The BBH Limited Duration Fund from Brown Brothers Harriman offers broad exposure to the U.S. bond market, with an average duration of less than two years. This means the fund holds very short-term bonds, allowing investors to benefit from a higher interest rate environment.

The fund’s goal is to maximize total return and does so with a well-diversified portfolio of fixed income instruments that historically perform well. In terms of composition, at least 70% of assets are invested in fixed income (e.g., corporate securities and asset-backed securities), with the rest in cash and other holdings, such as loans. For class shares intended for retail investors, the minimum investment in the fund is $5,000.

What is a Retirement Income Fund?

A retirement income fund is a type of mutual fund designed to provide retirees with a steady stream of income. These funds are known to hold a mix of stocks, bonds and cash equivalents. Instead of focusing on aggressive growth, the purpose of investing in retirement income funds is to receive regular payouts, typically through dividends and interest payments.

Balanced Funds

A balanced fund is a portfolio that includes both stocks and bonds. This combination aims to balance its potential growth by owning stocks but still sees stability and income generation from 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. One common portfolio blend allocation is 60% stocks and 40% bonds.

Bond Funds

Bond mutual funds own fixed income assets like government bonds, corporate bonds, municipal bonds or a combination of them all. 

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. The diversification reduces the impact of any one bond on the entire portfolio.

Dividend Funds

A dividend fund is an income-generating fund that regularly pays dividends to its shareholders. Dividend funds target stocks with relatively higher average yields to provide income potential for investors.

How Do Retirement Income Funds Work?

Retirement income funds are run by management teams that select a diversified portfolio of stocks or bonds or both. The primary objective is to generate income from bond interest payments and stock dividends, which are distributed to investors in the form of regular payments.

When they make income from the fund, investors often have the option to reinvest it back into the fund. This can be done automatically or manually to allow the fund to continue growing over time.

Retirement Income Fund vs. Target Date Fund

Target date funds are a type of mutual fund designed to help people save for retirement. These funds consist of a diversified portfolio of stocks and bonds. Ideal for hands-off investors, you pick your target retirement date, and the fund automatically shifts stocks based on that timeline. Younger investors may start with riskier stocks that will gradually shift to more conservative options over time.

Who Should Invest in a Retirement Income Fund?

RIFs make saving for retirement easy. “Retirement income funds are a good fit for people who want a simple way to get income from their retirement savings,” Gammon says. They’re managed and can rebalance automatically, so anyone who wants to be hands-off with their investments should consider this investment option.

They’re also ideal for retirees or near-retirees who want a steady stream of income without having to actively manage multiple funds or individual securities. Because RIFs typically include a mix of investment types, they can provide both growth potential and stability. However, they may not be the best fit for investors seeking higher returns or those who prefer to control their own asset allocation.

Benefits of Retirement Income Funds 

The biggest benefit is simplicity. Retirement income funds provide income from fixed-income sources. Further, RIFs can be fairly low-cost compared to other investments that are focused on fixed income.

Other major benefits include:

• Diversification: Retirement investment funds typically include a mix of bonds, dividend-paying stocks and cash equivalents.
• Professional management: Investors don’t have to actively manage individual investments; it’s all managed by financial professionals.
• Consistent income: Many retirement investment funds offer reliable monthly or quarterly distributions, which are ideal for retirees seeking a predictable cash flow.
• Convenience: These funds seek to simplify retirement investing by combining growth potential, income and portfolio maintenance into one fund.

Are Retirement Income Funds a Good Investment for Retirees? 

Retirement income funds can be a good choice for people who want a steady income and don’t want to manage their investments on their own. 

However, returns can fluctuate with market conditions, and income may not always keep pace with inflation. Retirees who need more flexibility or want to tailor their portfolio to specific goals might prefer managing their own investments, too.

How To Choose a Retirement Income Fund

When selecting a retirement income fund, consider your income needs, risk tolerance and timeline:

• Your income goals: Determine how much monthly income you’ll need from the fund and choose a fund that meets your needs.
• Fund allocation: Look for a mix of assets that matches your comfort level with risk. Some funds are meant for small-cap gains, whereas others are designed to grow with time.
• Fees: Lower expense ratios help you retain more of your income over time.
• Payout consistency: Review the fund’s distribution history to ensure stable income.
• Taxes: Understand how the fund’s income and distributions will be taxed. Your financial advisor will have the best guidance on how to choose a fund based on your income level and investment style.

Frequently Asked Questions (FAQs)