Investors aiming for early retirement face myriad hurdles to overcome, including ensuring they have adequate income to support their lifestyles. That can be made difficult due to withdrawal rules governing employer-sponsored retirement plans and individual retirement accounts (IRAs).
The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) helps solve the income part of that equation. The Nationwide Risk-Managed Income ETF uses an options trading strategy called a protective net-credit collar to generate income. The options strategy sells an upside call option and uses a portion of the proceeds received to buy a put option to hedge downside risk on an underlying portfolio of securities.
“Perhaps you’ve worked hard and want more free time to enjoy your success. Or maybe you’re wondering if you should take the early retirement package you were offered,” writes Kristen McKenna for Forbes. “Either way, retiring at 55 is considered early. For some investors, it’s too early. But if you’ve been diligently saving and can manage your lifestyle expenses, retiring at 55 could be within reach.”
NUSI Can Help Retirees Reach Goals
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or buy on a share-for-share basis to generate income via premiums derived from the sale of the call options.
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
NUSI’s income stream could prove vital for early retirees looking to avoid some of the tax consequences of tapping retirement accounts too early.
“Even after you retire, you might still not be able to access money in an IRA without incurring a 10% penalty. Taking an early retirement is not one of the exceptions to the 10% penalty for early withdrawals from a traditional or Roth IRA. So you may need to wait until you turn 59 1/2 to access these accounts,” according to Forbes.
NUSI is an actively managed portfolio of stocks included in the Nasdaq-100 Index and an options collar. Per index rules, the fund only invests in the top 100 largest by market cap, nonfinancial stocks listed on NASDAQ. A collar strategy involves selling or writing call options and buying put options, thus generating income to hedge some downside risk. The strategy seeks to generate high current income monthly from any dividends received from the underlying stock and the option premiums retained.
For more on income strategies, visit our Retirement Income Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.