If you’re searching for a retirement investment that pays better than most bonds — without all the ups and downs of the stock market — then it’s time to discover one of the most overlooked income opportunities out there: preferred stocks.
Preferreds are often called the “best of both worlds,” because they sit right between stocks and bonds. They pay higher income than most bonds, offer more stability than common stocks, and can provide a steady stream of monthly or quarterly income — all while being surprisingly low-maintenance.
Let’s unpack what makes preferred stocks so special, why retirees love them, and how you can invest in them the smart (and simple) way.
What Are Preferred Stocks?
Preferred stocks are a hybrid investment — part bond, part stock. When you buy a preferred share, you’re essentially lending money to a company in exchange for a regular dividend, much like a bond. But you’re also technically a shareholder, like you are with a common stock.
Here’s how they stand out:
- Higher Dividends: Preferreds typically pay fixed dividends, often between 5% and 8%, and sometimes more.
- Priority Payouts: In tough times, preferred shareholders get paid before common stockholders. That makes them safer in a downturn.
- Less Volatile: Preferreds don’t bounce around in price like regular stocks. They tend to trade in a narrow range, making them ideal for income-focused investors.
While they can go up in value, most people buy preferred stocks for their dependable income, not capital gains.
Why Preferred Stocks Are Perfect for Retirees
When you’re in retirement, income becomes the name of the game. Preferreds offer a unique solution for retirees who want:
- Reliable monthly or quarterly income
- Higher yields than traditional bonds or dividend stocks
- Reduced volatility compared to the stock market
- A way to diversify beyond Treasuries or corporate bonds
Because preferred stocks are often issued by large, stable companies like banks, utilities, and real estate firms, they tend to be dependable even during economic slowdowns.
For retirees who are tired of watching interest rates yo-yo — and tired of rollercoaster stock prices — preferred stocks provide a calm, predictable stream of income.
So Why Haven’t You Heard About Them?
Preferred stocks don’t get much media attention. They’re not flashy. They’re not growth rockets. You’re not going to hear about them on the nightly news. But here’s the thing:
Many large institutions and pension funds use preferreds as a core source of income.
And for retirees who understand how they work, preferreds can become a powerful income engine — quietly working in the background while you enjoy your life.
Should You Buy Individual Preferred Stocks?
You can buy individual preferred stocks — just like you’d buy any company’s common stock. But here’s why most retirees should skip that:
- Preferreds can be hard to research — each one has different terms, call dates, and risks.
- They’re often thinly traded, meaning low liquidity.
- Some preferreds are callable, meaning they can be taken back by the issuer when rates fall — not great for long-term planning.
That’s why many investors choose to buy preferreds through exchange-traded funds (ETFs) or closed-end funds (CEFs) instead. These funds take care of all the research, diversification, and reinvestment for you.
6 Top Preferred Stock ETFs and CEFs
Here are six of the best funds — a mix of ETFs and CEFs — that make owning preferreds easy, diversified, and income-rich. All offer attractive yields, professional management, and strong track records.
1. iShares Preferred and Income Securities ETF (PFF)
- Type: ETF
- Yield: ~6.4%
- Why It’s Great: PFF is the largest and most well-known preferred stock ETF. It holds a broad basket of U.S. preferreds, mostly from big banks and insurers. It’s widely diversified, pays monthly dividends, and is easy to buy and sell.
2. Invesco Preferred ETF (PGX)
- Type: ETF
- Yield: ~6.5%
- Why Retirees Like It: PGX focuses on investment-grade preferreds, offering more stability and quality. It’s a popular alternative to PFF, especially for conservative investors who value quality over yield.
3. Global X U.S. Preferred ETF (PFFD)
- Type: ETF
- Yield: ~6.6%
- Why It’s Popular: PFFD has grown quickly due to its low fees and solid monthly payouts. It offers similar exposure to PFF but with a cleaner, more transparent structure.
4. Cohen & Steers Limited Duration Preferred & Income Fund (LDP)
- Type: CEF
- Yield: ~8.0%
- Why It’s Special: This fund focuses on shorter-duration preferreds, which are less sensitive to rising interest rates. It also uses some leverage to boost income, which is why the yield is higher than ETFs.
5. Flaherty & Crumrine Preferred and Income Fund (PFD)
- Type: CEF
- Yield: ~7.9%
- Why It’s Respected: Flaherty & Crumrine is a specialist in preferred securities. PFD has been around since 1991 and has delivered reliable monthly income for decades. A very retiree-friendly option.
6. John Hancock Preferred Income Fund (HPI)
- Type: CEF
- Yield: ~8.4%
- Why Investors Choose It: HPI combines preferred stocks with a few high-yield corporate bonds. It’s actively managed, uses leverage for higher yields, and focuses on income first — exactly what most retirees are looking for.
A Real-Life Example
Let’s say you’re a 68-year-old retiree with $200,000 you want to put to work for income. Instead of rolling it into a CD or a low-yield bond, you invest it like this:
- $50,000 in PFF
- $50,000 in LDP
- $50,000 in PFD
- $50,000 in HPI
With average yields between 6.5% and 8.5%, your portfolio could generate roughly $14,000–$16,000 per year in income — or $1,200–$1,300 per month — without touching your principal.
You’d receive steady monthly payments, and you could sleep well knowing your income is backed by some of the largest, most stable companies in the country.
Key Takeaways
- Preferred stocks offer a powerful blend of bond-like income and stock-like ownership.
- They typically pay higher yields than common stocks or bonds.
- Preferreds are less volatile than stocks and offer priority payouts.
- For most retirees, it’s smarter to invest in preferred stock ETFs or CEFs for simplicity and diversification.
- Some of the top funds include PFF, PGX, PFFD, LDP, PFD, and HPI.
- Preferreds can become a reliable income engine in your retirement plan — without the stress.
Preferred stocks may be one of the best-kept secrets in retirement income, but they don’t have to be a mystery. With the right fund, the right strategy, and a little bit of planning, you can turn your savings into a monthly paycheck that keeps coming — no matter what the market does.
This post is excerpted from my book:
9% Retirement Paycheck: How to Generate Steady, Worry-Free Income for Life,
available at Amazon.com in paperback or eBook formats.
Disclaimer: For Educational Purposes Only
The content on this website is intended for general educational use and should not be considered personalized financial, legal, or tax advice. Always consult a qualified professional before making financial decisions. All investments carry risk, and past performance is not a guarantee of future results. The author assumes no liability for actions taken based on this content.