Looking for Reliable Retirement Income? This Vanguard ETF Could Be Worth a Closer Look.

There's a reason retirement isn't always smooth sailing. When you're no longer earning a paycheck, keeping up with your expenses can be stressful. That's why it's important to make sure you have steady income coming your way.

Social Security may play a big role in your income picture. But for many retirees, it just isn't enough to cover all of their living expenses.

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That's why it's important to supplement those monthly checks with income from savings and investments. And one investment that may deserve a closer look is the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).

The Vanguard High Dividend Yield ETF won't necessarily deliver the highest return. Instead, the fund focuses on owning hundreds of established companies with above-average dividend yields. And that approach could make it a worthwhile addition to your retirement portfolio.

Steady retirement income matters

Many retirees enter retirement believing Social Security will cover most of their expenses. In reality, housing, healthcare, food, and other costs can quickly consume your monthly benefits entirely. If you want to have money for hobbies, travel, home improvements, and so forth, you'll generally need outside income.

Dividend stocks have long been touted as a good source of ongoing income. And they're a good fit for retirees, because rather than relying on gains alone, investors can use their dividend payments to supplement their Social Security checks.

Of course, building and maintaining a diversified portfolio of individual dividend stocks requires time and ongoing research. If you're looking for a simpler solution, a dividend-focused fund like the Vanguard High Dividend Yield ETF offers broad exposure through a single investment.

How the Vanguard High Dividend Yield ETF invests

The Vanguard High Dividend Yield ETF tracks the FTSE High Dividend Yield Index, which includes hundreds of U.S. companies expected to pay above-average dividend yields. The fund's largest holdings include well-established companies with long histories of generating profits and returning cash to shareholders through dividends.

Like many Vanguard funds, Vanguard High Dividend Yield ETF has an extremely low expense ratio, allowing you to keep more of the income your investments generate instead of paying higher management fees. The fund's expense ratio is just 0.04% compared to an average expense ratio of 0.85% across similar funds.

The risks you can't ignore

No investment is perfect. And the Vanguard High Dividend Yield ETF is no exception.

Although dividend-paying companies tend to be more established, their stock prices can still fall during market downturns. If you buy shares of this fund, you'll need to be prepared for fluctuations, which can be more painful in retirement when you're drawing from your portfolio than during your working years.

It's also important to understand that dividend payments aren't guaranteed. Companies can reduce or eliminate dividends during periods of financial stress.

Furthermore, if you're looking for the highest possible yield, you may find other dividend ETFs that pay more. Those higher yields elsewhere, though, may come at the cost of more volatility.

Finally, the Vanguard High Dividend Yield ETF has relatively limited exposure to some of the fastest-growing companies. That could cause the fund to lag the broader market during periods when growth stocks outperform.

However, many retirees would rather lock in steady income than chase growth. If you're one of them, this could be an optimal investment for you.

A strong building block

One additional thing to know about the Vanguard High Dividend Yield ETF is that it's not a complete retirement investment strategy. While it offers benefits like diversification, low costs, consistent dividend income, and exposure to financially established companies, it should ideally still be one component of a broader portfolio.

But all told, the Vanguard High Dividend Yield ETF could be your ticket to ongoing income that supplements your Social Security nicely.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.