Retirees Looking For Reliable Income Should Consider These Two Vanguard ETFs

Retirees looking to better ride out the market waves but have no desire to depart the equity markets (after all, it is the best asset class for building wealth over the long term) may wish to check out the broader basket of Vanguard exchange-traded funds (ETFs). Undoubtedly, Vanguard continues to lower the bar on ETF expense ratios (or fees) to this day after recently slashing their already rock-bottom fees that much further.

Indeed, when it comes to Vanguard, you’ll know you’re probably getting one of the lowest fees around, regardless of the “flavor” you’re looking for. Of course, passive funds will always be among the cheapest. 

In this piece, we’ll focus on two Vanguard ETFs for retirees who prioritize passive income above all else. When it comes to the select income-focused ETFs, you’re not just getting high-yielders, you’re getting companies with well-covered dividends and cash flow streams that are resilient enough to justify consistent annual dividend increases over time.

Vanguard Dividend Appreciation ETF (VIG)

I’ve praised the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) many times in the past as a great solution for those who want not only a dividend yield higher than that of the S&P 500, but regular “raises” each year.

Even if you’re looking to supplement your income in retirement, the yield, I believe, should be one of the last factors you look for. At the end of the day, if you’re a younger retiree — let’s say in your early 60s — you still need to go for growth. On the surface, you’re getting a low-beta (0.83) ETF with a yield just shy of 1.7% — not exactly the most tempting of “dividend ETFs” in the Vanguard ETF roster.

However, considering the potential for high single-digit annualized dividend growth, it becomes more apparent that the VIG is a fantastic inflation fighter. So, if you expect inflation to stay at 3% for years to come, you’ll do quite well with the VIG if it averages, let’s say 8% in dividend growth per year.

Of course, you’ll need to invest a considerable sum for the initial dividend (upfront yield of 1.7%) to be a needle-mover for your income fund. Either way, I think those looking for a place to stay ahead of inflation (or even stagflation) ought to consider the name.

At the end of the day, the yield-heavy low-to-no-growth stocks and ETFs, while most tempting to pick up due to the size of their yields (some are 4% or more), can cost you a great deal of capital gains potential. That’s the trade-off to get the more “generous” yield you’ll rake in. Indeed, for some high-income no-growers, the trade-off is almost not worth it, especially if revenue growth has been negative and could continue to accelerate to the downside.

Either way, if you’re not keen on an ETF yielding more than 4%, the VIG is a fantastic choice that balances dividend and growth. It’s a tremendous low-cost (0.05% expense ratio) dividend growth ETF.

Vanguard Real Estate ETF (VNQ)

Thematic ETFs won’t be every retired person’s cup of tea. However, the Vanguard Real Estate ETF (NYSEARCA:VNQ) stands out as a high-yield income ETF that could really help diversify a portfolio into an alternative asset class.

Indeed, Real estate investment trusts (REITs) are in a class of their own. And while they may still be at risk of tanking alongside the stock market once the next painful correction happens — with a 1.17 beta, the VNQ may fall a bit more than the market — the path forward could be far less correlated.

At the end of the day, the REITs have been dragged down by the higher-rate environment. As the Fed looks to cut rates further, perhaps the many cheap REITs that are still down considerably from their 2021 peaks could be positioned to make up for lost time. If it’s not for the richer yield — the VNQ yields 3.8% at the time of writing — perhaps the lower valuation multiples are worth getting behind. 

It’s no mystery that many retirees find more comfort in real estate than stocks. And while the VNQ may trade like a stock, I like to think of it as a basket of more than 100 cash-generating properties spread across a vast range of sub-industries. From data centers to healthcare facilities and everything in between, the VNQ is a low-cost (0.15% expense ratio) one-stop-shop that many retirees should have on their shopping lists.

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