Three ETFs Yielding Up to 12 Percent for Retirement Income

The JPMorgan Equity Premium Income ETF (JEPI) and the NEOS S&P 500 High Income ETF (SPYI) both offer yields around 12% through covered-call strategies, providing retirees with sufficient monthly cash flow to cover expenses without needing to sell shares. In contrast, the Amplify CWP Enhanced Dividend Income ETF (DIVO) employs a different approach, writing calls on a select group of blue-chip stocks, yielding approximately 8% while also achieving a total return of 16% due to equity appreciation.

The traditional 4% withdrawal rule, which requires retirees to sell shares annually to fund living expenses, can be risky during market downturns. An alternative strategy has emerged, where retirees can rely on high-distribution ETFs to generate income. The three ETFs mentioned are among the largest in this category, each utilizing option premiums as their primary income source, but they differ significantly in their underlying equity portfolios and call-writing strategies.

JEPI is particularly favored due to its actively managed, low-beta portfolio of U.S. large-cap stocks, combined with equity-linked notes that write out-of-the-money calls on the S&P 500. This strategy allows JEPI to yield well above the traditional 4% rule, despite its portfolio resembling a typical blue-chip collection. The fund's top holdings are diversified, with no single stock exceeding 2%, which helps mitigate volatility and allows the option overlay to enhance income.

Over the past year, JEPI has distributed approximately 12% at a price of around $58, achieving a total return of roughly 15%. Its expense ratio stands at 0.35%, which is competitive for an actively managed fund with an options overlay. However, the trade-off is that JEPI may underperform during strong bull markets due to its capped upside from the equity-linked notes.

SPYI, on the other hand, tracks the entire S&P 500 and writes calls on the index, achieving a yield of about 12% through monthly distributions. This ETF benefits from the favorable tax treatment of its options, as a portion of the income qualifies for long-term capital gains. SPYI has a more concentrated exposure to mega-cap tech stocks, which has led to better performance in rising markets, with a reported increase of around 18% recently.

The fund employs a data-driven approach to its call writing, aiming to maximize equity appreciation potential while still generating income. With approximately $8 billion in assets and an expense ratio of 0.70%, SPYI offers a compelling option for investors seeking high cash yields, albeit with greater risk during market downturns.

DIVO, the least recognized of the three, focuses on a concentrated portfolio of 20 to 30 blue-chip dividend payers, writing calls tactically based on market conditions. This results in a lower yield of about 8%, but it preserves more equity upside, making it an attractive option for those prioritizing total return over immediate income. DIVO has shown a total return of around 16%, supported by consistent dividend growth and a low payout ratio.

For retirees seeking stability and consistent income, JEPI is recommended due to its low-volatility approach. SPYI is ideal for those in higher tax brackets looking for maximum cash yield, while DIVO suits investors who value total return and can accept the risks associated with a concentrated portfolio.