These 2 Dividend ETFs Are a Retiree's Best Friend

When you retire, your investment goals are likely to change in a material way, going from building a nest egg to living off of one. For most retirees, income investments, like dividend-paying exchange-traded funds (ETFs), will suddenly become your best friends.

But what if you want to keep your life simple so you can spend your time enjoying things like family, travel, and recreation? Here are two ETFs that you can use to create a high-quality, income-producing balanced portfolio, containing a mix of high-grade stocks and bonds.

The equity component is key: Schwab U.S. Dividend Equity ETF

When it comes to building a balanced portfolio, it is vital to pay attention to the equity component, which should probably make up at least 60% of assets early in retirement (maybe up to 80% for really aggressive investors). The growth equities provide will help your portfolio keep up with inflation over time.

But you also want something that generates income and is relatively conservative. That's exactly what you get with Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).

Schwab U.S. Dividend Equity ETF only looks at companies (but not real estate investment trusts, or REITs) that have increased their dividends annually for 10 years or more. Thus, it starts out with a focus on high-quality, growing companies. But it doesn't stop there.

After getting the list of reliable dividend payers, Schwab U.S. Dividend Equity ETF then creates a composite score with which it ranks the stocks from best to worst. The score includes cash flow to total debt (a financial strength measure), return on equity (which highlights the strength of a business), dividend yield (income), and the company's five-year dividend growth rate (income growth).

As noted, companies are lined up from the highest to lowest score, with the top 100 scoring companies included in the ETF. Basically, Schwab U.S. Dividend Equity ETF is building a portfolio that is balancing company quality, yield, and dividend growth. That's exactly what a retiree would want.

All of this selection effort comes fairly cheaply, with an expense ratio of just 0.06%. That's not free, but on Wall Street, it is pretty darn close to it. The dividend yield is a touch under 3.5%. That's not huge on an absolute basis, but it is more than twice the yield on offer from the S&P 500, which is down at just 1.2%.

And because of the selection criteria, the portfolio is fairly well diversified. That means you can supplement Schwab U.S. Dividend Equity ETF with other higher-yielding equity investments (perhaps REITs or utilities, neither of which are material exposures in the portfolio), or just sit back and spend your time on other things.