How a Couple With $1 Million in Retirement Can Build a Tax-Efficient $2,392 Monthly Income Stream Using 2 Vanguard ETFs

Many Americans reach retirement assuming Social Security will cover most of their expenses. While delaying benefits until age 70 can substantially increase payouts, the average retiree claiming at that age only receives roughly $2,500 per month. For a couple, that’s a meaningful income floor, but for many households it still isn’t enough to comfortably cover housing, healthcare, travel, property tax, and other retirement expenses.

Fortunately, a $1 million retirement portfolio can do much of the heavy lifting. By pairing two low-cost Vanguard ETFs, retirees can build an additional income stream while keeping taxes relatively manageable. Better yet, both funds are highly tax efficient. One primarily distributes qualified dividends, while the other pays federally tax-exempt municipal bond interest, making retirement planning much simpler than relying on taxable bond funds or covered call strategies.

Vanguard High Dividend Yield ETF (VYM)

The Vanguard High Dividend Yield ETF (VYM) excludes real estate investment trusts (REITs), removes companies that have not paid a regular dividend during the past 12 months or are not expected to pay one over the coming year, then ranks the remaining stocks by their forward dividend yield before weighting them by market capitalization.

The result is essentially a value ETF in all but name. Compared with the S&P 500, the portfolio trades at a much lower price-to-earnings multiple of roughly 21x while remaining broadly diversified across more than 600 companies.

After its tiny 0.04% expense ratio, VYM currently offers a 2.25% 30-day SEC yield as of June 30. Importantly, during 2025, 100% of its distributions were qualified dividends. That favorable tax treatment is largely achieved by focusing on U.S. corporations while excluding REITs, whose distributions are generally taxed differently.

For many retirees, allocating 50% of a portfolio to VYM represents a reasonable starting point, although more conservative or aggressive investors can certainly adjust the weighting to 60%, 70%, or another allocation. On a $500,000 investment, a 2.25% yield produces approximately:

• Annual income: $11,250
• Quarterly income: $2,812 (Monthly equivalent: $937)

Vanguard Tax-Exempt Bond ETF (VTEB)

While VYM provides equity income, retirees also need a stabilizing allocation to high-quality fixed income. That role can be filled by the Vanguard Tax-Exempt Bond ETF (VTEB).

The fund tracks the Standard & Poor’s National AMT-Free Municipal Bond Index. For an ultra-low 0.03% expense ratio, investors receive exposure to investment-grade municipal bonds that currently generate a 3.49% 30-day SEC yield.

The major advantage is taxation. The interest paid by VTEB is generally exempt from federal income tax and the Alternative Minimum Tax (AMT), making it one of the more tax-efficient fixed income ETFs for taxable accounts.

Unlike VYM, which distributes quarterly, VTEB makes monthly distributions. With the remaining $500,000 invested in VTEB, retirees would receive approximately:

• Annual income: $17,450
• Monthly income: $1,454

How to Manage this Portfolio

A 50/50 VYM/VTEB portfolio with $1 million in principal would currently generate approximately $28,700 annually, or roughly $2,392 per month, before taxes where applicable, and before any future changes in fund distributions. Add in Social Security, and you have a decent basement for retirement income.

One advantage of this approach is that VYM also offers reasonable long-term capital appreciation potential. If your income needs increase over time or distributions temporarily decline, you can always supplement your cash flow by selectively selling shares, allowing your retirement income to come from both yield and capital appreciation.

For retirees, I think  keeping withdrawals mechanical is often preferable to trying to time markets. Rather than spending whichever ETF has recently performed better, consider drawing proportionally from both allocations and rebalancing on a regular schedule, such as once a year. That approach helps maintain the desired stock-bond mix, minimizes unnecessary taxable transactions, and removes much of the emotion from managing retirement income.

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