A 61-year-old trying to replace a monthly paycheck before Social Security kicks in faces a straightforward math problem, and two exchange-traded funds keep coming up as the most common tools for solving it.
According to a report by Yahoo Finance, the target number for this type of pre-Social Security bridge strategy is roughly $42,000 per year, or about $3,500 per month. That amount is meant to cover housing, healthcare premiums, and basic living costs for a household that has already paid down its mortgage.
The two funds most often cited for this purpose are the Schwab U.S. Dividend Equity ETF, known by its ticker SCHD, and the JPMorgan Nasdaq Equity Premium Income ETF, known as JEPQ. They work differently and serve different purposes within a portfolio.
SCHD tracks a screen of quality U.S. dividend-paying companies. Its forward yield runs around 3%. The trailing 12-month payout was $1.048 per share, distributed quarterly. Top holdings include QUALCOMM at 7%, Texas Instruments at 6%, UnitedHealth at 5%, Coca-Cola, Merck, Chevron, and Procter & Gamble. Over the past decade, SCHD is up 232% on a price basis. Over the past year alone, it has gained 31%.
JEPQ works differently. It writes covered calls against a Nasdaq-100 equity sleeve and distributes the premium income on a monthly basis. Shares trade near $59.74. The trailing 12-month distribution totaled $6.52 per share, and the annualized forward yield stands at 8.5%. The expense ratio is 0.35%. For comparison, the 10-year Treasury currently sits at 4.63%.
A 50/50 blend of the two produces a blended yield of roughly 5.7%. At that yield, generating $42,000 annually requires a portfolio of approximately $737,000.
If an investor used only SCHD at its 3% yield, the required portfolio jumps to about $1,400,000. That is the more conservative approach, built around blue-chip dividend growers. If an investor used only JEPQ at 8.5%, the required portfolio drops significantly, but the analysis warns against using JEPQ as a sole long-term holding. Its high yield is tied to volatile Nasdaq option premiums, not growing earnings, which makes it a weaker standalone choice over a 25-year retirement.
One tax consideration matters for account placement. JEPQ's distributions are taxed as ordinary income, which means holding it inside a traditional IRA or Roth IRA shelters those payments from higher tax rates. SCHD's dividends qualify for lower qualified dividend tax rates, making it more flexible for taxable brokerage accounts.
The analysis does not factor in Social Security, which would eventually supplement or replace portions of the portfolio withdrawal. For a 61-year-old, that additional income stream could arrive as early as age 62 at a reduced benefit, or later at a higher one, depending on the individual's claiming strategy.
