62-Year-Old With $400K And 8 Months To Retire Faces Huge Dilemma – 'How Would You Invest $400K?' Redditors Debate Best Low-Risk Moves - Schwab US Dividend Equity ETF (ARCA:SCHD)

Retirement should be a time of financial peace, not stress; yet, for many soon-to-be retirees, the transition from wealth accumulation to income generation can be challenging.

The pressure to restructure the portfolio, ensuring it generates sufficient income to live comfortably, is immense, more so when market volatility looms. For those with low-risk tolerance, the task is even more daunting because the wrong move could mean returning to work or cutting back on living expenses drastically.

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A Redditor has shared in a post that he’s faced with this exact challenge. With just eight months until retirement, the investor, a 62-year-old, has $400,000 to invest and is looking for maximal monthly dividend income with minimal risk.

Although this income won’t be his primary retirement funding but extra lifestyle cash to supplement his pension, the pressure to restructure his allocations wisely is immense for the poster.

“I’m in an odd spot due to exiting a business as a founder. My retirement scenario gets better every year. If I ever need extra cash, it will be in the first 5 years. I have a low-risk tolerance. Or, God forbid, I would need to go back to work if it crashed! It looks like we are in a dip now, obviously a high rate environment. Would this qualify as a better time to buy?” the investor wrote.

The responses to his post ranged from ultra-conservative to moderately aggressive, so let’s analyze them.

Soon-to-be Retiree Has $400,000 to Invest for Dividend Income–Reddit Weights In

Invest in High-Quality Dividend ETFs

Considering the investor’s low-risk approach, Redditors suggested he pick a few high-quality ETFs to invest in.

“[Schwab U.S. Dividend Equity ETF SCHD] gets you a decent amount,” a comment reads.

“[NEOS S&P 500 High Income ETF SPYI] and chill,” says a Redditor, to which another user replied, “One advantage of SPYI is that its dividends are mainly return of capital. So, the tax is lower than an unqualified dividend from, say a [business development company]. However, if you use a tax-advantaged account like the Roth, that doesn’t matter.”

A commenter mentioned he splits his portfolio between two ETFs.

“I split between SPYI and [JPMorgan Nasdaq Equity Premium Income ETF JEPQ],” he said.

“[JPMorgan Equity Premium Income ETF JEPI], JEPQ, [WP Carey WPC], [Enterprise Products Partners LP EPD], [MPLX LP MPLX], SPYI,” an allocation suggestion reads.

A Reddit user wrote that this favorite individual stock of many investors is the perfect choice since it generates a 7% dividend yield per year.

“[Altria Group MO] – recession resistant, 7% yield. Your $400,000 would kick out $28,000 a year in income,” he said.

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Go For Higher-Yielding Income Plays

Several Redditors suggested business development companies and covered-call ETFs since they deliver around 8% to 11% yields if the investor can handle a bit of risk.

“High-quality [business development companies] like [Ares Capital Corporation ARCC], [Blue Owl Capital Corporation OBDC], [Golub Capital BDC GBDC], [Blackstone Secured Lending Fund BXSL], [Main Street Capital Corporation MAIN], [Capital Southwest Corporation CSWC], [Fidus Investment Corporation FDUS]. Average 9% yield,” a user recommended.

“[Business development companies] are a solid income-producing asset. This person doesn’t have decades to wait for growth. They need the money now as they are about to retire and growth was presumably the focus for the past few decades,” an advocate for business development companies wrote.

A Redditor shared in the comments that he’s been retired for 15 years and has the biggest part of his portfolio in high-yield business development companies.

“I’m 78 and have been retired for 15 years. I’m fortunate that social security and pensions cover my living expenses. The majority of my portfolio is high-yield [business development companies], [closed-end funds], and [real estate investment trusts]. The average yield is a tad over 10%. In 2022, the total value dropped but less than the DOW or S&P. The dividends kept on coming without missing a beat. High risk they say, high rewards I say. It allows me to spend winters in Florida and yearly overseas vacations. I have zero regrets,” the retiree said.

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