Not everyone reaches retirement with a million-dollar nest egg, and that is perfectly normal. Many people started investing later in life, prioritized paying down a mortgage, built wealth through a small business, or have much of their net worth tied up in assets like real estate or gold that simply do not throw off liquid income.
Social Security also does much of the heavy lifting. Someone who waits until age 70 to claim benefits receives the maximum monthly payout available. The average benefit for a 70-year-old across all claimants was $2,275 per month as of late 2025, according to Social Security Administration data, and those who specifically delayed claiming until age 70 tend to receive a meaningfully higher check thanks to delayed retirement credits. That Social Security income creates a substantial foundation before any portfolio withdrawals even begin.
Suppose your investment portfolio totals $400,000. At age 70, the objective naturally shifts from maximizing growth toward efficient decumulation. Generating $30,000 annually ($2,500 per month) requires a portfolio yield of roughly 7.5% on $400,000 of principal. That is a high bar for conventional bond ladders or dividend stocks, but two specialized ETFs can reach it while keeping tax efficiency in mind.
Every retiree’s tax situation differs, 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 considerably. Here is 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 (CBOE:SPYI) serves as the equity-based income engine of this portfolio while preserving full exposure to the S&P 500. The fund has grown rapidly since its August 2022 launch, now managing more than $10 billion in assets, a milestone that reflects strong demand from income-focused investors.
Rather than simply selling covered calls, SPYI actively buys and sells index options using Section 1256 contracts. Under current U.S. tax law, Section 1256 gains receive a favorable 60/40 split: 60% are treated as long-term capital gains and 40% as short-term, regardless of how long the position was held. 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 12.04% distribution rate, calculated by annualizing the most recent monthly distribution and dividing it by the fund’s net asset value. Allocating $200,000 (half the portfolio) at that rate would generate approximately:
- Annual income: $24,080
- Monthly income: About $2,007
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. These figures remain estimates until investors receive their year-end Form 1099-DIV, and the return-of-capital character can shift from year to year depending on market conditions.
ETF #2: VanEck High Yield Muni ETF
The remaining $200,000 can be allocated to the VanEck High Yield Muni ETF (NYSEARCA:HYD), which provides a more defensive income pocket alongside SPYI’s equity exposure.
HYD passively tracks the ICE Broad High Yield Crossover Municipal Index and carries a 0.32% expense ratio. The index is designed with a degree of credit discipline built in: it caps non-rated bonds at 30% of the portfolio and includes meaningful allocations to investment-grade municipal bonds, giving HYD somewhat stronger credit quality than a pure high-yield muni fund might carry.
The fund currently offers a 4.37% 30-day SEC yield. A $200,000 allocation at that rate would generate approximately:
- Annual income: $8,740
- Monthly income: About $728
Those municipal bond distributions are generally exempt from federal income taxes and the Alternative Minimum Tax, which represents one of the most compelling advantages of municipal bond investing for retirees in higher tax brackets. State tax treatment varies and depends on where the investor resides.
Putting This Income ETF Portfolio Together
Combined at current distribution rates, these two ETFs would generate approximately $32,820 per year, or about $2,735 per month, before taxes. That comfortably clears the $2,500 monthly income target while pairing a higher-yield equity income strategy with a more conservative municipal bond allocation, providing some ballast if equity markets turn volatile.
This approach carries real risks worth naming clearly. SPYI’s distributions are variable and depend on option premiums, market volatility, and portfolio management decisions, so monthly income will fluctuate rather than arrive like clockwork. HYD carries both credit risk from its below-investment-grade holdings and interest rate risk given its long average maturity. A sharp rise in rates would pressure NAV even if income holds up in the near term.
Most importantly, these yields are not guaranteed. Distribution rates can rise or fall, and both funds should be reviewed periodically. Treating this as a permanent set-it-and-forget-it solution would be a mistake. Pairing these ETFs with a modest cash reserve equal to several months of expenses can help retirees avoid selling shares during a distribution dip.
Editor’s note: This article updates the SPYI distribution rate to 12.04% and the HYD 30-day SEC yield to 4.37% based on figures current as of mid-2026, revising the combined income estimate upward to approximately $32,820 per year ($2,735 per month); the Social Security average benefit figure for 70-year-olds has also been corrected to $2,275 per month, reflecting SSA data through late 2025.
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