Best Income Funds for Retirement

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

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Overview of Income Funds for Retirement

Income funds present an attractive investment option for those seeking to generate income while preserving their capital. These funds are specifically designed to provide regular payouts in the form of dividends, interest, or other distributions.

Income funds typically consist of a diversified portfolio of income-generating assets such as bonds, dividend-paying stocks, real estate investment trusts (REITs), preferred shares, and other fixed-income securities.

The fund managers carefully select these assets with the goal of generating consistent income over time.

Retirement income funds offer several advantages. First and foremost, they provide a predictable stream of income, allowing retirees to cover their living expenses and maintain their desired standard of living.

Moreover, income funds often aim to strike a balance between income generation and capital preservation, making them suitable for individuals with a lower risk tolerance.

It's worth noting that income funds can be held within retirement accounts such as Individual Retirement Accounts (IRAs) or 401(k)s, offering potential tax advantages and additional flexibility.

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Types of Income Funds for Retirement

Dividend-Paying Stock Funds

Dividend-paying stock funds invest in companies known for their regular and high dividend payouts. These dividends can be re-invested or paid out as a regular income stream to the investors.

Bond Funds

Bond funds can be an excellent source of regular income, as they invest in bonds that pay interest over a specified period. These can be:

1. Government Bond Funds: Invest in securities issued by governments. They are typically considered low-risk investments.

2. Corporate Bond Funds: Invest in bonds issued by corporations. They tend to have higher yields compared to government bonds but come with additional risk.

3. Municipal Bond Funds: These funds invest in bonds issued by local governments. The interest earned from these funds is often tax-exempt.

    Real Estate Investment Trusts (REITs)

    REITs are companies that own or finance income-producing real estate. Investors can invest in these trusts, earning a share of the income produced.

    High-Yield Savings Funds

    These funds aim to provide higher returns compared to regular savings accounts. They primarily invest in high-quality, short-term instruments.

    Money Market Funds

    These are low-risk mutual funds that invest in short-term debt securities and are an excellent choice for conservative investors.

    Hybrid Funds/Balanced Funds

    Hybrid funds or balanced funds invest in a mix of stocks and bonds, providing both growth and income. They are an excellent choice for individuals looking for diversification.

    Types of Income Funds for Retirement

    Incorporating Income Funds Into Retirement Planning

    Diversifying Amongst Various Types of Income Funds

    A well-diversified portfolio can protect against market volatility and ensure a steady income stream. Diversifying your portfolio across various types of income funds can help achieve this balance.

    Rebalancing the Portfolio Periodically

    Rebalancing helps maintain the desired level of risk and return in a portfolio. It involves adjusting the proportions of different assets as per their performance and market conditions.

    Understanding Withdrawal Rates and Sustainability

    One of the critical aspects of retirement planning is determining how much money can be withdrawn from your income funds each year. Understanding the sustainable withdrawal rate is essential to ensure that the funds last throughout retirement.

    Best Income Funds for Retirement

    While there are numerous income funds available in the market, the selection depends on individual risk tolerance, income needs, and investment horizon. Each fund's unique attributes should be examined in detail.

    Tax-Aware Conservative Growth and Income Portfolio (TAIFX)

    TAIFX is managed by American Funds, which seeks to provide a high level of current income exempt from federal income tax. It does so while focusing on conservation and long-term growth of capital, making it an ideal choice for those planning their retirement funds.

    Schwab Balanced Fund (SWOBX)

    SWOBX offers a balanced mix of equity and fixed-income investments. This fund seeks capital growth and income while also maintaining moderate volatility, making it suitable for those desiring growth and income during their retirement.

    Dodge and Cox Income Fund (DODIX)

    DODIX is known for its long-term income and capital preservation strategy. Its primary investment in high-quality bonds makes it a reliable choice for retirement income.

    PGIM High Yield Fund (PHYZX)

    PHYZX aims for high income and capital appreciation. It invests primarily in high-yield bonds, which carry higher risk but also offer potentially higher returns. This fund might appeal to retirees who can tolerate higher risk in exchange for potentially higher returns.

    T. Rowe Price Dividend Growth Fund (PRDGX)

    PRDGX offers the potential for capital appreciation and dividend income. It primarily invests in stocks of companies expected to increase their dividends over time, making it an attractive option for individuals seeking growth in their retirement years.

    Best Income Funds for Retirement

    Alternative Retirement Income Options

    While income funds provide a reliable pillar for retirement income, they're only one part of a robust retirement plan.

    There are several alternative retirement income options worth considering. Annuities, for instance, can offer a fixed income for life, providing a sense of security. Pensions serve as another steady income source, often based on your final salary and years of service.

    Social Security is a government-guaranteed income that adjusts with inflation. Additionally, if you have property, rental income can provide a substantial contribution to your retirement income. Diversifying your income sources can provide financial stability throughout retirement.


    Choosing the best income funds for retirement involves careful consideration of various options, including dividend-paying stock funds, bond funds, REITs, high-yield savings funds, money market funds, and balanced funds.

    A well-diversified portfolio can help mitigate risks and ensure a steady income stream during retirement. Funds like TAIFX, SWOBX, DODIX, PHYZX, and PRDGX each offer unique benefits and can serve as strong contenders for retirement planning.

    Additionally, it's vital to understand withdrawal rates to ensure sustainability and consider alternative retirement income options like annuities, pensions, social security, and rental income.

    However, the landscape of retirement income funds can be complex, and risks such as market volatility, interest rates, and inflation must be carefully considered.

    It's beneficial to seek the guidance of a financial advisor. They can provide professional services tailored to your financial situation, helping you navigate your journey toward a secure retirement.

    Best Income Funds for Retirement FAQs

    About the Author

    True Tamplin, BSc, CEPF®

    True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

    True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

    To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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