We're all going to need income in retirement, and that could come from shaving off some of our assets every year -- for instance, selling shares of stock from our portfolio. That can work, but if you live a long time, you do run the risk of running out of dollars before you run out of breath. So, consider generating passive income from some great exchange-traded funds (ETFs) -- funds that trade like stocks.
For my own retirement, I plan to generate a significant amount of income passively via dividends from dividend-paying stocks. I own various dividend payers along with a dividend-focused ETF or two. Here are three for you to consider.
Image source: Getty Images.
Can you get $1 million in passive income?
I have to say, collecting $1 million in passive income, presumably annually, is a tall order. It's not like you're going to be able to have a $2 million portfolio and a 50% dividend yield, generating $1 million.
A more typical dividend yield for good blue chip companies is between 2% and 4%, with plenty of exceptions higher and lower. Some well-regarded companies do have yields of 5% or 6% or more, though. Verizon Communications (NYSE: VZ), for example, recently yielded 6.4%, and Realty Income (NYSE: O) yielded 5.7%. Meanwhile, the S&P 500 index, which holds 500 of America's biggest companies, sported an overall dividend yield of only 1.2% recently. (Many of those 500 companies don't pay a dividend at all.)
So, here are some scenarios that show how much passive income you might generate with different kinds of portfolios:
|
Portfolio Value |
Overall Average Dividend Yield |
Annual Income |
|---|---|---|
|
$500,000 |
3% |
$15,000 |
|
$1,000,000 |
3% |
$30,000 |
|
$2,000,000 |
3% |
$60,000 |
|
$33,333,333 |
3% |
$1,000,000 |
Source: Calculations by author.
You'd need a portfolio worth $33,333,333, per the table above, if you want to collect $1 million annually via an overall average dividend yield of 3%. The table below doubles that to 6% and shows that you'd only need a $16,666,667 portfolio.
|
Portfolio Value |
Overall Average Dividend Yield |
Annual Income |
|---|---|---|
|
$500,000 |
6% |
$30,000 |
|
$1,000,000 |
6% |
$60,000 |
|
$2,000,000 |
6% |
$120,000 |
|
$16,666,667 |
6% |
$1,000,000 |
Source: Calculations by author.
Take some comfort in the other numbers, though. You might set up $30,000 or $60,000 or some other excellent amount of passive income with a more reasonable-sized portfolio.
3 ETFs that could generate lots of passive income for you
You might now be wondering which ETFs to consider for that wonderful passive income. Here are three solid contenders:
|
Exchange-Traded Fund (ETF) |
Recent Yield |
5-Year Avg. Annual Return |
10-Year Avg. Annual Return |
|---|---|---|---|
|
Schwab U.S. Dividend Equity ETF (SCHD -0.02%) |
3.9% |
11.49% |
11.24% |
|
Fidelity High Dividend ETF (FDVV -0.15%) |
3.1% |
17.56% |
N/A |
|
Vanguard High Dividend Yield ETF (VYM -0.29%) |
2.6% |
13.79% |
10.51% |
Source: Yahoo! Finance and Morningstar.com, as of August 6, 2025.
Each offers a solid dividend yield along with impressive average annual gains. Such returns are not guaranteed, of course, and some ETFs will post poor or even negative results now and then. But overall, these have done well and are poised to continue.
If you want fatter yields, you might consider the iShares Preferred & Income Securities ETF (PFF -0.13%), which recently sported a yield of 6.5%. Its average annual gains are far lower, though, as it's a fund specializing in preferred stocks, which tend to be generous dividend payers with little stock-price appreciation.
Another option to consider is a covered-call ETF such as the JPMorgan Equity Premium Income ETF (JEPI 0.12%) or the JPMorgan Equity Premium Income ETF (JEPQ -0.04%), recently yielding 8.4% and 11.2%, respectively. But read up on these kinds of ETFs first to make sure you understand what you're investing in and how they work.
However you go about it, give serious consideration to loading up much of your long-term portfolio with dividend payers, as they can generate a lot of passive income for you.
