These Income ETFs Can Meet — & Exceed — Retiree Needs

Market watchers and advisors have sounded the alarm about a huge wave of Baby Boomer retirements for years. With those individuals now reaching retirement age en masse, however, many are finding themselves without the financial assets they had expected. Advisors have many tools to consider to support clients, and income ETFs may be a good solution for them.

See more: Nasdaq Exposure & Income? This ETF Can Help

The 2008 Financial Crisis left a painful dent in many Boomers’ retirement plans from which many did not recover, while rising costs have also taken their toll. The major post-pandemic inflation spike, too, did not help matters. 

Thankfully, the latter has coincided with the proliferation of so-called income ETFs that offer investors current income. Within that category are “covered call ETFs,” strategies that offer income and equity exposure together, with the caveat that they can potentially limit equities upside.

Many investors, including those at or near retirement, have flocked to that category of income ETFs, and for good reason; it’s tough to ignore that offer of equity capital appreciation and income in one strategy. 

Not all such strategies are created equal, however. Especially for those at or near retirement who still need to grow their nest egg, it pays to look closer at covered call ETFs. Covered call ETFs sell call options on their underlying equities holdings. 

Many traditional strategies utilize options that expire on a monthly basis. This can limit upside if the underlying equity holdings rally through the option strike price early in the month. That can leave gains on the table and derail retirement plans.

A Daily Approach

Enter covered call ETFs powered by options that expire on a daily basis. Daily covered call ETFs seek a high level of income and target equity benchmark returns over time. They are designed to overcome the limitations of traditional monthly strategies and allow greater participation in the market’s upside. 

A strategy like ISPY, the ProShares S&P 500 High Income ETF, stands out as a key example. ISPY targets high income and S&P 500 returns in one ETF for a 55 basis point (bps) fee. The strategy has returned 12.2% YTD. It has also provided an 8.7% 12-month distribution rate as of November 30th according to ProShares data.

Looking ahead as the economic landscape continues to be volatile, many investors – including those nearing retirement – may want a boost. Income ETFs, especially covered call solutions like ISPY, can play that key role while also offering meaningful equities exposure. 

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