Retiring In Months With $700,000, 62-Year-Old Plans $500,000 Move To Dividends – 'Should I Go All-In On JEPI, JEPQ, Or Riskier Plays?' - Hoya Capital High Dividend Yield ETF (ARCA:RIET)

When approaching retirement, many investors must decide how to allocate their savings to ensure a regular income stream while preserving their capital.

In this situation, dividend investing often becomes a favorite option as it offers the potential for regular income without the need to sell shares. Still, high-yield ETFs can be tempting, especially when it comes to maximizing returns, but such allocations need to be balanced with more conservative assets to minimize the risk.

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One Reddit user, a 62-year-old soon-to-be-retiree, has shared his dilemma: he has $700,000 in stock market index funds and a small company pension but is considering moving $500,000 into high-yield dividend funds. His main goal is to generate $4,000 a month in dividends to cover his living expenses and reinvest the excess dividends.

He’s considering allocating 20% each to JPMorgan Equity Premium Income ETF JEPI and JPMorgan Nasdaq Equity Premium Income ETF JEPQ and is tempted to add double-digit-yielding ETFs to the mix. Yet, he’s worrying about the risks involved, particularly the potential for capital erosion over time.

“I mean, if I buy $500,000 worth of high dividend funds–that in 10 years would be $500,000 (hopefully more). Will do JEPI and JEPQ. Tempted to add some double-digit yielding ETFs to the mix. Any suggestions? Is there such a thing as a double-digit ETF that will hold its value over time?” he asked.

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The Reddit thread provided the investor with plenty of advice, so here are the most relevant suggestions from the comment section.

Invest $500,000 in Dividend Funds for at Least $4,000/Month? Reddit Debates The Poster’s Plan

Don’t Put All Your Eggs in One Basket

Many Redditors emphasized the importance of portfolio diversification, especially when relying on high-yield assets for retirement income.

“JEPI and JEPQ are ETFs. They yield 7.1% and 9.9% respectively. You won’t find too many other ETFs that yield more than those. [Hoya Capital High Dividend Yield ETF RIET] – a [real estate investment trust] ETF yields 9.8%. [Virtus InfraCap U.S. Preferred Stock ETF PFFA] – a preferred stock ETF yields 9%. Their expense ratios are a little higher and they tend to be interest rate sensitive too,” a comment reads.

A suggestion advocates for a more balanced approach, combining index-based and actively managed funds to reduce risk.

“Pick a combo… 75% into index-based ones like JEPI/JEPQ, [Goldman Sachs S&P 500 Core Premium Income ETF GPIX]/[Goldman Sachs Nasdaq-100 Core Premium Income ETF GPIQ], [NEOS S&P 500 High Income ETF SPYI]/[NEOS Nasdaq-100 High Income ETF QQQI] and 25% into active like [Amplify CWP Enhanced Dividend Income ETF DIVO]/[Global X S&P 500 Quality Dividend ETF QDVO]. So overall, you will have four funds. Enjoy your retirement, you deserve it!”

“Do it! Go check out Armchair Income on YouTube. He gives you his highly diversified portfolio blueprint. He yields 11% over 35 different investments… nothing more than 5%. Deep research focused on yield and stable [net asset value],” another comment reads.

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Focus on Sustainable Income

Several Redditors warned the investor against chasing double-digit yields, as they often come with considerable risks, such as capital erosion and volatility. Instead, they recommended focusing on sustainable revenue that balances yield and stability.

“You want “only” $4,000 per month out of $500,000, meaning you actually want a 10% dividend. Hopefully, you understand that is a lot and it comes with risk, especially the risk of net asset value erosion. Personally, I think it’s a risky strategy for retirement and I wouldn’t recommend it. But hey, whatever floats your boat and makes you happy!” a Redditor said.

A commenter shed some light on the mechanics of a particular high-yield fund, which emphasized the trade-off between capital preservation and yield.

“[Cornerstone Total Return Fund CRF] will not hand out free money. They will balance with the total returns of the market. So, if the market goes up, say 30%, and it has an 18% yield, CRF will go up by the remaining 8-12%. But if the market goes down, say 30%, it will go down by the remaining 48%-ish. This is why they consistently go down in value year after year. The market has to beat its yield %,” he said.

One Redditor noted that double-digit ETFs are not a good pick for retirement, suggesting the poster go with more conservative assets.

“Double-digit return ETFs are a terrible choice for retirement, way too much volatility. If you want to sleep at night go with more reliable assets,” the Redditor wrote.

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