How Much Does a 63-Year-Old Need Invested to Collect $7,150 a Month for Life?
The yield you chase determines whether you need $858,000 or nearly three times that to generate the same monthly paycheck, and the wrong choice at 63 can cost you decades of purchasing power.
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A 63-year-old who wants $7,150 a month from a portfolio needs it to produce $85,800 a year. That income has to fund the years before Social Security begins and then keep paying for decades. The yield you assume sets how much capital the plan needs. Thankfully, the math is easy, as there is just one equation at play, and that is taking annual income and dividing it by yield equals capital required. Below, that equation runs at three yield levels and then for a six-fund mix built around a 5.1% blended yield.
Conservative Tier: Highest Entry Price, Strongest Growth
Dividend growth funds usually yield 3% to 4%. On its forward dividend, Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) yields about 3.3% with shares near $33. iShares Core Dividend Growth ETF (NYSEARCA:DGRO) yields about 2%.
At a typical 3.5% yield, $85,800 divided by 0.035 equals roughly $2.45 million. In return, you get diversification and rising payouts. DGRO paid about $0.71 per share in 2017 and $1.49 over the past 12 months, which is more than double, at an expense ratio of 0.08%.
Mid-Range Yields Deliver Monthly Income for Less Capital
If you go for a more mid-range approach, REITs, preferred shares, and covered call funds generally yield 5% to 7%. At 6%, $85,800 divided by 0.06 equals $1.43 million.
Realty Income (NYSE:O) pays monthly and yields 5.8% following its 115th consecutive quarterly increase. iShares Preferred and Income Securities ETF (NASDAQ:PFF) yields about 6.5% on its forward rate, though its payouts swing. One March distribution came to just $0.03 per share. JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) yields about 7.3% forward. Its trailing 12-month payout of $4.56 is above its forward annualized figure of $4.10.
You give up some things here. Income grows more slowly, covered call strategies cap upside, and preferreds move with interest rates. PFF’s share price rose only about 3% over five years.
Aggressive Tier: Least Capital, Most Principal Risk
For those who want to get really aggressive, business development companies, mortgage REITs, and high-yield bond funds typically pay 8% to 14%. At 10%, $85,800 divided by 0.10 equals $858,000.
Main Street Capital (NYSE:MAIN | MAIN Price Prediction) sits at the lower edge of this range. Its regular monthly dividend rose to $0.265, and quarterly supplements of $0.30 bring its trailing payout to $4.32 per share, about 7.8% on the current price. The board decides each supplemental, so none is guaranteed. Many vehicles at this level pay out more than they earn and lose principal over time.
Six-Fund Blend: Roughly $1.68 Million
The best scenario here is to create a six-blend fund where the model portfolio holds 25% SCHD, 20% DGRO, 20% JEPI, 15% Realty Income, 10% Main Street, and 10% PFF, for a blended yield of 5.1%. $85,800 divided by 0.051 equals about $1.68 million.
SCHD and DGRO pay quarterly, and the other four pay monthly, so monthly deposits will vary. For comparison, the 10-year Treasury yields 5.2%, which is higher than the average. A bond’s coupon stays fixed, though, so that income never grows.
Why the Lowest Yield Can Pay the Most Later
Say a 3.5% portfolio’s dividends grow 8% a year. Its $85,800 of income reaches about $171,500 within nine years. A 12% portfolio with no dividend growth still pays $85,800. After ten years of 3% inflation, that check buys only what about $63,800 buys today. Someone who is 63 may need income into their 90s, and the gap grows every year.
Moves to Make Before Picking a Yield
- Separate the bridge years from the lifetime gap. Once Social Security starts, the portfolio only has to cover the difference between your benefit and your spending. That brings down the capital needed at every level. Model both phases on their own.
- Budget from the low end of the distribution history. JEPI and PFF payouts change from month to month. Base spending on their lighter months, and count Main Street’s supplements as extra rather than core income.
- Match each holding to an account type. REIT and BDC distributions are largely taxed as ordinary income, while most dividends from SCHD and DGRO qualify for lower rates. Holding the higher-yield funds in an IRA can raise after-tax income without adding capital.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
