Want Steady Retirement Income? Add This ETF to Your Portfolio and Do Nothing Else

There's a reason retirees are often advised to claim Social Security strategically. Those benefits are a guaranteed source of monthly income, so choosing the right filing age is key.

But you're going to need more retirement income than Social Security alone can provide. So it's important to set yourself up with assets that pay you steadily over time. And the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI) fits the bill for retirees seeking ongoing income.

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How the JPMorgan Equity Premium Income ETF works

The JPMorgan Equity Premium Income ETF isn't necessarily an optimal investment for people building wealth for retirement. But for retirees seeking income, it can be a great option.

The fund invests in a portfolio of established, low-volatility companies to minimize risk. At the same time, it writes call options against its holdings that investors pay for. Those options generate income that the fund can then share with investors and distribute monthly.

In other words, the JPMorgan Equity Premium Income ETF is not just your typical dividend ETF. Its covered call strategy allows it to generate more substantial yields.

Why it pays to consider the JPMorgan Equity Premium Income ETF for retirement

As a retiree, the one thing you really need is predictable cash flow without undue risk. The JPMorgan Equity Premium Income ETF fits the bill in both regards.

Plus, it offers simplicity. Rather than build and manage a portfolio of individual dividend stocks, you can put your money into a single fund and reduce the time you have to spend keeping tabs on your investments.

And with a net expense ratio of 0.35%, you won't lose a lot of money to fees with the JPMorgan Equity Premium Income ETF. In other words, for every $10,000 you invest in the fund, you'll spend $35 on fees.

That's not negligible, but do remember that the JPMorgan Equity Premium Income ETF is an actively managed fund. Some ETFs simply track an index passively, so they're able to offer lower fees. But for an actively managed ETF, 0.35% is pretty competitive.

The risks and drawbacks to know about

While the JPMorgan Equity Premium Income ETF is a great option for retirees seeking steady income, it's important to know the risks. First, distributions are not guaranteed.

The income generation by the fund's options premiums can fluctuate, so payouts aren't guaranteed to be the same month after month. In other words, don't look at this the same way as a Social Security check or bond payment, where the issuer is contractually obligated to pay you a certain amount of interest at different intervals.

Secondly, the covered call strategy the fund employs limits its growth potential. During periods of broad market gains, the JPMorgan Equity Premium Income ETF may underperform S&P 500 or total stock market ETFs because it sacrifices some appreciation in favor of income.

If you're in retirement, that may align with your strategy anyway. But it's an important thing to know about.

Also, do remember that the JPMorgan Equity Premium Income ETF is subject to the same volatility as any stock you might own. Though it may be less volatile than other ETFs, it can still lose value during a significant market downturn.

Finally, while the JPMorgan Equity Premium Income ETF could fit nicely into your retirement income strategy, you shouldn't necessarily make it your only investment. Even a diversified fund like this works best as part of a broad strategy that includes other assets and asset classes.

But all told, if you're looking for steady retirement income without having to do a lot of work, the JPMorgan Equity Premium Income ETF could be a good fit for your portfolio.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.