A $1.4 Million Portfolio That Generates More Income Than the Average California Public Employee Pension

CalPERS reports an average annual retirement benefit of approximately $45,264. Many California public employees who spend a full career in the system and retire with 30 or more years of service receive benefits above that average. A $1.4 million portfolio generating a conservative 3.5% yield produces about $49,000 a year in income, slightly exceeding the published average benefit. At higher yield levels, the same portfolio can generate substantially more income than the average pension payment.

The Income Target and the Base Math

The calculation is straightforward: divide the income target by the portfolio yield to determine the capital required. Generating $45,264 annually at a 3.5% yield requires roughly $1.29 million of invested assets. A $1.4 million portfolio therefore provides a modest cushion above the average CalPERS retirement benefit.

With the 10-year Treasury yielding about 4.45%, investors accepting a dividend yield below that level are generally trading current income for other potential advantages, including dividend growth, favorable tax treatment in some cases, and the possibility of long-term capital appreciation.

Conservative Tier: 3% to 4% Yield

This is the broad dividend-growth lane. Vanguard High Dividend Yield ETF (NYSEARCA:VYM | VYM Price Prediction) sits here, with an expense ratio of 0.04% and a distribution yield in the low 3% range. At 3.5%, $1.4 million produces $49,000 a year. At 4%, the same capital produces $56,000.

The reward is diversification across hundreds of names, rising dividends most years, and a principal balance that has historically appreciated alongside the broader market. This tier is most likely to keep pace with the CalPERS 2% cost-of-living adjustment and then some.

Moderate Tier: 5% to 7% Yield

Realty Income (NYSE:O) yields 5.3% on its $3.23 annualized dividend, having paid a 670th consecutive monthly dividend with shares at $61. Altria (NYSE:MO) yields 5.8% on a $4.20 annualized payout, with shares at $70 and 2026 EPS guidance of $5.56 to $5.72.

A blend of net-lease REITs, tobacco, and preferred-share funds lands the portfolio in the 6% range. At 6%, $1.4 million produces $84,000 a year, nearly doubling the CalPERS average on the same capital. Dividend growth slows in this tier but does not stop.

Aggressive Tier: 8% to 14% Yield

NEOS S&P 500 High Income ETF (NASDAQ:SPYI) runs a covered-call strategy on the S&P 500 designed for high monthly income in a tax efficient manner with the potential for equity appreciation in rising markets, with an expense ratio of 0.68% and net assets near $6.9 billion. Its distribution yield typically sits in the low double digits. Main Street Capital pays a regular monthly dividend of $0.26 plus a $0.30 quarterly supplemental, for total annualized income near $4.32 per share at a price of $51.

At a blended 10% yield, $1.4 million produces $140,000 a year, roughly triple the CalPERS average. The catch is that covered-call funds cap upside in rising markets and many high-yield vehicles see principal drift lower over long stretches. The investor in this tier is closer to spending down an asset than living off its growth.

Why the Lowest Yield Often Wins

CalPERS pensions carry a 2% annual COLA cap, and CPI hit 332.4 in April 2026. A dividend-growth portfolio compounding payouts at 6% to 8% annually doubles its income in roughly 9 to 12 years. A 12% yield with no growth stays flat in nominal terms and loses purchasing power every year inflation runs hot. Wes Moss made the same point on the Clark Howard Podcast: “dividends have grown at twice the rate on average of inflation”, which is the structural advantage the aggressive tier gives up for current cash.

What to Do With This Math

1. Calculate actual annual spending, not gross salary. Most retirees need to replace 70% to 80% of pre-retirement income, so the real target may be smaller than the CalPERS average suggests.
2. Compare the trailing 10-year total return of a 3% to 4% dividend-growth fund against a 10%-plus covered-call or BDC product. The compounding gap usually shows up after year seven.
3. Model the tax impact in your bracket. REIT distributions, BDC dividends, and covered-call ETF payouts each have different tax treatment, and a high-tax state like California can swing the after-tax yield by more than a percentage point.