Global Dividend Powerhouse: How SCHY and SCHD Can Anchor Your Retirement Income Strategy

In the pursuit of steady retirement income, dividend-paying equities remain a cornerstone for many investors. Yet, relying solely on U.S. markets leaves portfolios vulnerable to domestic economic cycles and misses opportunities abroad. Enter the Schwab U.S. Dividend Equity ETF (SCHD) and its international counterpart, the Schwab International Dividend Equity ETF (SCHY). Together, this dynamic duo offers a low-cost, tax-efficient way to build a diversified income stream while mitigating volatility—a critical strategy for retirees seeking both stability and growth.

The Case for Dividend ETFs in Retirement

Dividend ETFs like SCHD and SCHY are engineered for long-term income generation. SCHD, which tracks the Dow Jones U.S. Dividend 100 Index, focuses on U.S. companies with strong dividend histories, emphasizing sectors like consumer goods, utilities, and healthcare. Its portfolio is designed to avoid companies with inconsistent payouts, ensuring a steady cash flow. SCHY, launched in April 2021, mirrors this approach internationally, targeting the top 100 dividend-paying companies outside the U.S. that have maintained payouts for at least a decade.

The Myth of SCHY's 10-Year Track Record—and Why It Doesn't Matter

Critics may point out that SCHY itself lacks a 10-year history. But this misses the point: the ETF's underlying holdings—companies included in the Dow Jones International Dividend 100 Index—do have robust dividend track records. Each constituent must have paid dividends for at least 10 consecutive years, ensuring a foundation of stability. By proxy, SCHY inherits this quality, even in its relative youth. This structural rigor makes it a reliable income generator in emerging and developed international markets alike.

Diversification That Reduces Volatility

Pairing SCHY with SCHD creates a dual-income portfolio with sector and geographic diversification. SCHD's U.S. focus leans heavily into defensive sectors, while SCHY taps into regions like Europe, Asia, and Australia, where dividend policies often prioritize shareholder returns over growth. For example, European utilities and telecoms frequently offer higher yields than their U.S. peers, while Asian consumer staples benefit from rising middle-class spending.

This geographic spread can buffer against market shocks. When U.S. equities dip due to Federal Reserve policy, international holdings may remain resilient—and vice versa.

Tax Efficiency and RMD Compliance

Retirees must balance income needs with tax efficiency. Both SCHD and SCHY are ETFs, which generally offer tax advantages over mutual funds due to their in-kind creation/redemption process. However, international dividends may face withholding taxes in some countries, typically ranging from 15% to 30%. U.S. investors can claim a foreign tax credit on their returns to offset these costs, a detail retirees should discuss with their tax advisors.

For Required Minimum Distribution (RMD) compliance, holding these ETFs in a Traditional IRA or 401(k) ensures payouts align with IRS rules. The dividends from both funds are treated as ordinary income, simplifying RMD calculations.

Building the Portfolio: A Practical Framework

Aim to allocate 20-30% of your equity portfolio to international dividends via SCHY, paired with 30-40% in U.S. dividend equities via SCHD. The remainder can be allocated to bonds or other income assets. For example, a $500,000 retirement portfolio might look like this:

• SCHD: $200,000 (40%)
• SCHY: $100,000 (20%)
• High-quality bonds: $150,000 (30%)
• Cash/emergency reserves: $50,000 (10%)

This structure balances income, growth, and liquidity while leveraging the ETFs' low expense ratios (SCHD: 0.06%; SCHY: 0.06%).

The Bottom Line: Income, Diversification, and Discipline

SCHD and SCHY are not just ETFs—they're pillars of a disciplined retirement strategy. Their low costs, dividend-focused mandates, and global reach make them ideal for retirees seeking to:
1. Enhance income through diversified payouts.
2. Reduce volatility by avoiding overexposure to any single market.
3. Simplify tax planning with straightforward structures.

While no investment is immune to market cycles, this pair offers a proven framework to weather uncertainty. For retirees, the goal isn't to chase the highest yield—it's to build a portfolio that sustains you through decades of withdrawals. SCHY and SCHD, used thoughtfully, can do exactly that.

Invest wisely, and let the dividends work for you.