Boost Social Security Benefits with This Dividend ETF Strategy

The fundamental challenge becomes: how do you convert retirement savings into consistent monthly income? Bonds represent one approach through interest payments. However, dividend-paying stocks deserve equal consideration. This brings us to an investment worth examining: the Schwab U.S. Dividend Equity ETF (SCHD -0.42%).

This fund presents compelling characteristics that merit attention. The performance metrics are genuinely encouraging. SCHD delivers a trailing-12-month dividend yield approaching 4%, which substantially exceeds typical S&P 500 index funds and many competing dividend-focused options.

Consider this calculation: a $100,000 investment would generate approximately $4,000 in annual dividend income at current rates. For retirees trying to maximize Social Security benefits through additional income streams, these numbers warrant serious consideration.

Understanding SCHD’s Investment Strategy

The fund tracks the Dow Jones U.S. Dividend 100 Index, which employs rigorous screening methodologies. This index selects 100 high-quality dividend stocks (excluding REITs, or Real Estate Investment Trusts) that have maintained dividend payments for at least 10 consecutive years. Companies qualify through comprehensive scoring that evaluates several key metrics:

• Return on equity performance
• Current dividend yield
• Five-year dividend growth rates
• Free cash flow relative to total debt

The holdings include recognizable companies: Texas Instruments, Chevron, ConocoPhillips, Merck, and PepsiCo. Beyond the attractive dividend yield, SCHD functions as a value investment with an average price-to-earnings ratio of just 16 times trailing earnings. Compare this to the S&P 500’s trailing P/E ratio of 25, and the valuation difference becomes clear.

The Performance Reality Check

However, it’s worth considering this important context. Despite strict selection criteria that generate high yields and growing payouts, SCHD has underperformed the S&P 500 over the past decade. This gap has widened since early 2024, as market enthusiasm for artificial intelligence has favored different investment types than those found in SCHD’s portfolio.

This recent underperformance reflects broader market dynamics rather than fundamental issues with the fund itself. Current market conditions have elevated AI-focused companies while temporarily overshadowing the steady dividend payers that form SCHD’s foundation.

Many people find that when planning how to live on Social Security (official planner), they quickly realize additional income sources become essential. This is where dividend-focused investments can play a crucial role in retirement planning.

Why This Matters for Retirees Right Now

Market analysts increasingly express concern about inflated valuations among the S&P 500’s largest components, combined with economic uncertainty ahead. These conditions actually create an environment where stable dividend payers and value stocks become particularly attractive for retirees seeking to supplement Social Security payments.

Morningstar analyst David Sekera articulates this perspective well in the company’s third-quarter 2025 market outlook: “Not only are value stocks undervalued on an absolute basis, but they also remain near some of the most undervalued levels relative to the broad market over the past 15 years.”

He continues with this observation: “In a market that is becoming overvalued, we see value in the relatively higher dividend yields found in the value category.”

Timing Social Security Benefits Strategically

For those wondering when to take Social Security and how to structure their retirement income, dividend investments like SCHD can provide flexibility. You might delay claiming benefits while living off dividend income, potentially increasing your future Social Security retirement benefits. Based on 2024 regulations, delaying Social Security past your full retirement age can increase your monthly benefit by up to 8% per year until age 70.

This strategy works particularly well when you have reliable dividend income to bridge the gap. However, everyone’s situation differs, so consult SSA.gov for personalized advice about your optimal claiming strategy.

Growing Income Over Time

Beyond SCHD’s current yield advantage, another crucial factor emerges: the fund demonstrates consistent dividend growth over time. This growth pattern provides retirees with increasing income that can help combat inflation’s erosion of purchasing power.

The steady upward trajectory of SCHD’s dividend payments reflects the financial strength of underlying companies and their management teams’ commitment to shareholder rewards. For retirees relying on investment income to supplement fixed Social Security benefits, this reliability becomes particularly valuable.

Building Inflation Protection

In my experience working with retirees, many worry about Social Security changes affecting their future payments. Having a growing dividend income stream can provide peace of mind and financial flexibility regardless of potential policy adjustments. While Social Security includes cost-of-living adjustments (COLAs), these adjustments don’t always keep pace with actual living expenses for many retirees.

Finding the Right Balance

One might ask: how does SCHD fit into a comprehensive retirement strategy? The fund provides exposure to established companies with proven business models and strong cash generation capabilities. These characteristics typically translate to lower volatility compared to growth-focused investments or broader market exposure.

For retirees, this reduced volatility serves dual purposes. First, it helps preserve capital during market downturns when you might need to liquidate investments for living expenses. Second, it provides stability during volatile market periods, helping maintain long-term discipline rather than making emotional decisions.

Diversification Principles for Retirees

A common mistake is putting all retirement eggs in one basket. Whether you’re trying to retire on Social Security alone or building a diversified income portfolio, balance remains key to long-term success. Financial advisors typically recommend the following allocation approach for retirees:

• Emergency fund covering 6-12 months of expenses in cash or cash equivalents
• Income-generating investments like dividend stocks or bonds for regular cash flow
• Growth investments for long-term purchasing power protection
• Consider your risk tolerance and time horizon when determining percentages

Putting It Into Practice

When evaluating SCHD for your retirement portfolio, consider your overall asset allocation and income requirements. The fund works effectively as part of a diversified approach that might include other dividend-focused investments, bonds, and potentially some growth-oriented holdings for long-term appreciation.

The key principle involves matching your investment timeline with appropriate risk levels. Retirees early in retirement might allocate a larger portion to SCHD and similar investments. Those with longer time horizons might balance dividend income with growth opportunities.

Calculating Your Income Needs

Here’s the practical approach: if you’re researching how to calculate Social Security benefits and realize they won’t cover your expenses, dividend stocks become an attractive supplement. They provide regular income while potentially growing over time.

To determine how much you might need in dividend investments, follow these steps:

• Calculate your monthly expenses in retirement
• Subtract your expected Social Security benefit (check your statement at SSA.gov)
• Identify the monthly income gap
• Multiply the annual gap by 25 to estimate needed investment principal (assuming a 4% withdrawal rate)

For example, if you need an additional $1,000 monthly ($12,000 annually), you’d need approximately $300,000 in dividend-paying investments to generate that income sustainably.

Making Your Decision

While SCHD currently trails S&P 500 performance by wider margins than usual, this temporary underperformance shouldn’t overshadow the fund’s fundamental strengths. Investors selecting SCHD can expect reliable income generation plus lower portfolio volatility than broader market exposure typically provides.

These characteristics align precisely with most retirees’ objectives: preserving capital while generating income to supplement Social Security benefits. The fund’s focus on quality companies with sustainable dividend policies creates a foundation for long-term financial security in retirement.

Important Considerations and Disclaimers

Your decision ultimately depends on your specific financial situation, risk tolerance, and income requirements. Remember that all investments carry risk, including potential loss of principal. Past performance doesn’t guarantee future results, and dividend payments aren’t guaranteed.

Before making investment decisions, consider consulting with a qualified financial advisor who can assess your complete financial picture. For questions about Social Security benefits and claiming strategies, visit SSA.gov or contact your local Social Security office for personalized guidance.

The truth is, Social Security benefits alone rarely provide the comfortable retirement most people envision. By incorporating dividend-focused investments like SCHD into your retirement planning strategy, you can build additional income streams that grow over time and help maintain your standard of living throughout retirement.

This approach requires careful planning and regular review, but for many retirees seeking to enhance monthly cash flow through proven dividend-paying companies, SCHD presents a compelling option that deserves serious consideration as part of a well-balanced retirement portfolio.