Not everyone reaches retirement with a million-dollar nest egg, and that’s perfectly normal. Many people started investing later in life, prioritized paying down a mortgage, built wealth through a small business, or simply have much of their net worth tied up in assets like gold that don’t generate liquid retirement income.
Social Security also does much of the heavy lifting. Someone who waits until age 70 to claim benefits receives the largest monthly payout available. Today, the average retiree claiming at age 70 receives roughly $2,500 per month, creating a substantial foundation before portfolio withdrawals even begin.
Suppose, however, your investment portfolio totals $400,000. At age 70, with life expectancy shorter than it was at age 60, the objective naturally shifts from maximizing growth toward an efficient decumulation strategy. Generating $30,000 annually, or $2,500 per month, requires a portfolio yield of roughly 7.5% before taxes on $400,000 of principal.
Of course, every retiree’s tax situation is different, making it impossible to calculate after-tax income universally. Even so, ETFs that generate qualified dividends, or better yet, return of capital, can improve tax efficiency. Here’s one way to build that income stream using just two ETFs from NEOS Investments and VanEck.
ETF #1: NEOS S&P 500 High Income ETF
The NEOS S&P 500 High Income ETF (SPYI) serves as the equity-based income engine for the portfolio while maintaining exposure to the S&P 500.
Rather than simply selling covered calls, SPYI actively buys and sells index options using Section 1256 contracts, which receive favorable 60/40 tax treatment under current U.S. tax law. The managers also employ tax-loss harvesting techniques that have historically allowed a large portion of distributions to be classified as return of capital.
SPYI currently offers a 12.08% distribution rate, calculated by annualizing the most recent monthly distribution and dividing it by the fund’s net asset value. Allocating $200,000, or half of the portfolio, would generate approximately:
- Annual income: $24,160
- Monthly income: About $2,013
According to the fund’s June 2026 Form 19a-1 estimate, approximately 93% of the latest distribution was estimated to be return of capital, with only 7% classified as ordinary income. As always, these figures remain estimates until investors receive their year-end Form 1099-DIV.
ETF #2: VanEck High Yield Muni ETF (HYD)
The remaining $200,000 can be allocated to the VanEck High Yield Muni ETF (HYD), creating a more defensive income bucket alongside SPYI’s equity exposure.
HYD passively tracks the ICE Broad High Yield Crossover Municipal Index and charges a relatively modest 0.32% expense ratio. Compared with many high-yield municipal bond funds, it maintains somewhat stronger credit quality by including meaningful allocations to investment-grade municipal bonds while limiting non-rated securities.
The fund currently offers a 4.18% 30-day SEC yield. A $200,000 allocation would therefore generate approximately:
- Annual income: $8,360
- Monthly income: About $696
Perhaps most importantly, those municipal bond distributions are generally exempt from federal income taxes and the Alternative Minimum Tax (AMT), illustrating one of the biggest advantages of municipal bond investing for retirees.
Putting This Income ETF Portfolio Together
Combined, the two ETFs would currently generate approximately $32,520 per year, or about $2,709 per month, before taxes and assuming their current distribution rates remain unchanged. That comfortably exceeds the initial $2,500 monthly income target while still pairing a higher-yield equity income strategy with a more defensive municipal bond allocation.
Of course, this approach is not without its drawbacks. SPYI’s distributions are variable and depend on option premiums, market volatility, and portfolio management decisions, so income should not be expected to remain constant. HYD, meanwhile, carries both credit risk and interest rate risk.
Most importantly, retirees should remember that these yields are not guaranteed. Distribution rates can rise or fall over time, so this portfolio should be reviewed periodically and rebalanced rather than treated as a permanent set-it-and-forget-it solution.
Contact [email protected] for any questions or corrections.
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