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The Million-Dollar Retirement Shortcut: How $JEPQ Investors Need 86% Less Money Than the "VOO and Chill" Bros
While index investors need $7.3 million for a $100K retirement income, dividend hunters can achieve the same with just $1 million...and start collecting checks now!
Dissecting the Markets
April 28, 2025
Looking to secure your financial future without needing to become a millionaire seven times over?
Here's a retirement planning insight that might shift your perspective: While the traditional path to a comfortable $100,000 annual retirement income through standard S&P 500 index funds like $VOO ( ▼ 1.11% ) would require you to amass a staggering $7.3 million nest egg, there's an alternative approach that could achieve the same income stream with just $1 million invested in dividend-focused ETFs like $JEPQ ( ▼ 0.85% ) .
This dramatic difference in capital requirements isn't just a mathematical curiosity but rather, it could completely transform how you plan, save, and ultimately live during your golden years.
The issue with relying on index funds for retirement
Amid my discussions with the “VOO and chill” bros and others who rely entirely on their 401(K)s for retirement, the common theme I find is that they are relying on these assumptions:
the index will keep growing at 8% annually
they will withdraw 4% of their portfolio annually and this will continue even when the markets are down
they will reinvest the remaining 4%
Every person who relies on index funds for retirement has variations to their retirement strategy. Someone I know personally plans on cashing out the money and buying income ETFs like $QYLD ( ▼ 0.24% ) or $JEPQ ( ▼ 0.85% ) with their big windfall. Get 10%+ annual dividends, only take 4% of the dividends, and reinvest the remaining 6% to get more dividend income. Someone else plans to work harder in their working years and accumulate enough $VOO ( ▼ 1.11% ) where the dividends alone are sufficient to meet their income needs. It all varies.
Relying on an index fund to continue to provide growth every year is risky. This bull market that we have been in since the bottom of the Great Financial Crisis of 2008 isn’t normal. When looking at indices of other countries, some countries have been in a lost decade for a long time. Japan’s Nikkei, for example, hasn’t seen a new stock market high since December 1989. The UK’s FTSE 100 has barely grown since the Dotcom bubble peak of 2000.
Retirees who rely on the FTSE 100 for retirement would probably run out of money within 25 years. Since the UK has a welfare system to support retirees, like a pension and a free healthcare system, the British retiree is in better shape.
Japan’s Nikkei 225 index
The UK’s FTSE 100 Index
If the S&P 500 performed the same as the FTSE 100, knowing that the majority of Americans don’t have a pension and the country doesn’t have a free healthcare system, American retirees would be screwed. The key question is: how did retirees survive those lost decades?
I think the answer lies in the index’s dividend yield. Historically, the index has yielded high dividends. Looking at the image above, for “Lost Decade #1”, the S&P 500 had a dividend yield between 3% and 6%. With the 4% rule, retirees were only losing 1% of their portfolio annually and, at times, were able to have dividends left over to reinvest into the market, because the majority of the amount they needed to withdraw was covered by the dividends paid by their index funds.
Since 1981, the dividend yield for the index has plunged immensely and has continued to plunge as the economy entered the zero interest rate territory. The S&P 500 did grow more aggressively with lower interest rates as businesses took on cheap debt to buy back more stock, and lower rates accommodated higher valuation multiples for stocks.
Retirees who purchased S&P 500 index funds during these periods of elevated dividend yields were able to build a foundation of exceptional long-term income security. While the chart below shows dividend yields plummeting to historic lows during the post-GFC tech boom, retirees today remain largely unconcerned about their income streams due to a critical yet often overlooked principle: their yield-on-cost grew to their initial investment despite the plunge in current market yields.
For example, an investor who purchased index funds yielding 4% in 2009 continued receiving that approximate percentage on their original capital and a higher percentage with time, even as yields for new investors dropped below 2%. This phenomenon, coupled with the 4% withdrawal rule (which suggests retirees can safely withdraw 4% of their initial portfolio annually with adjustments for inflation), provided these investors with substantial cash flow regardless of declining market yields.
As the red price line in the chart demonstrates, these investors also benefited from significant capital appreciation during periods when yields compressed, effectively creating a double-win scenario where their initial high-yield investments generated both reliable income and substantial portfolio growth.
For future retirees relying on the S&P 500 to fund their retirement, it’s understandable why they’d rely immensely on capital growth to fund their retirement. The yields that they’ve locked in are small, and capital growth seems to be the main way investors can meet their 4% withdrawal rate needs.
Having an immense reliance on capital growth is dangerous for many reasons. One, lost decades are a thing. Two, stocks don’t go up forever. Three, when a recession comes, the withdrawals made to pay for your expenses will eat up a larger percentage of your portfolio, reducing the number of years your portfolio can fund your retirement.
We can take a macro perspective on the markets and index funds to understand why returns won’t be favorable going forward. One of my favorite market commentators, Lyn Alden, made an insightful post called The Coming Problem with Index Funds. In her post, Alden discusses that the S&P 500’s current Cyclically-Adjusted Price-to-Earnings (CAPE) ratio, which divides the current market price of the S&P 500 index by the inflation-adjusted earnings of those companies over the last ten years, is high, signaling that equities are overvalued.
This is an issue for index fund investors because a higher CAPE ratio is associated with investment returns that are choppy and sideways over the next decade or two as these high valuations come back down to earth.
Some of the consequences of investing in equities during times of higher valuations (like today) are:
Lower dividend yields
Lower growth from reinvested dividends
Lower EPS growth from corporate share repurchases
Less room for valuation increases during your holding period
Besides the CAPE ratio, some investors like to use the “Buffett indicator,” which divides the market cap of all publicly traded stocks in the index by the GDP of the country. The higher the ratio, the more it means that share prices have outpaced actual production.
In these times, it makes sense that this indicator will be high as we’ve seen the stock market roar faster than corporate earnings, the index is trading at a high valuation multiple, the dividend yield of the index is low, and the returns investors are getting from share buy backs are low as well.
This phenomenon has been seen in the late 1920s and during the Dotcom bubble, and those times have resulted in mega crashes for investors. To better understand why it’s bad to invest in times of higher equity valuations, consider what Alden says in her post:
“The S&P 500 has experienced relatively long stretches of flat returns. After the 1929 peak, the market took 27 years to reach new highs in inflation-adjusted terms. After the 1968 peak, it took 24 years to reach new highs in inflation-adjusted terms. And after the 2000 peak, it took 14 years to reach new highs in inflation-adjusted terms.”
I can talk about the slower GDP growth, high government debt, aging population, DOGE spending cuts, tariffs, and other issues that will plague S&P 500 returns going forward.
I can talk about how international firms are already eating the market share of US companies in global markets.
I can talk about how the way index funds are structured makes them a bubble product.
I can talk about many other reasons for why both the domestic and international situation for S&P 500 companies isn’t pretty, but those topics will be for another day. All I’m saying is that I’m concerned with future retirees’ reliance on capital growth for funding retirement.
Why JEPQ is my ticket to financial independence
Let's talk about a game-changer in retirement planning: JPMorgan's Nasdaq Equity Premium Income ETF $JEPQ ( ▼ 0.85% ) . With its impressive 10% annual dividend yield, this ETF fundamentally transforms how quickly you can achieve financial independence compared to the "VOO and chill" approach.
Think about this: With traditional index funds, you're playing the waiting game, hoping your nest egg grows large enough that a 4% withdrawal rate will sustain your lifestyle. But with JEPQ, the math works dramatically in your favor from day one.
A $100,000 investment in $JEPQ ( ▼ 0.85% ) would generate approximately $833 in monthly dividend income. That's real money hitting your account every single month. At first, those dividends might cover your phone bill. As you continue investing, they'll grow to cover your electricity bill, then your car payment. Keep at it consistently, and before you know it, these monthly dividends could cover your mortgage.
This is the beauty of ETFs that have high cash-on-cash returns. They’re building an income stream that grows progressively more substantial without having to sell your assets. Eventually, that monthly dividend check becomes equivalent to your salary. That's when you've reached financial independence, your money is working harder than you are.
I read JEPQ’s prospectus to gain a better understanding of this income ETF. It holds stocks that are in the Nasdaq 100 and uses equity-linked notes (ELNs) to sell call options on the Nasdaq-100. Those covered call options that $JEPQ ( ▼ 0.85% ) sells are what make up the dividend income that investors receive each month.
The beauty of this approach is that it's designed to capture a majority of the returns associated with the Nasdaq-100 while exposing investors to lower volatility and providing that sweet, sweet incremental income.
But what about growth?
Here's where skeptics jump in: "But won't I make more money long-term with $VOO ( ▼ 1.11% ) ?" Maybe…but that's missing the point.
Financial independence isn't just about having the biggest number in your account at age 65. It's about freedom. Freedom that comes when your investments generate enough cash flow to cover your expenses. With JEPQ's 10% yield, that freedom can come much sooner.
Consider this: To generate $40,000 in annual income from VOO using the 4% rule, you'd need $1 million invested. With JEPQ's 10% yield, you'd need just $400,000. That's potentially decades of difference in your timeline to financial independence!
There's also the psychological benefit. Seeing actual dividends hit your account monthly provides tangible proof that your investment strategy is working. It's motivating in a way that watching a number on a screen slowly increase over decades simply isn't.
This regular income creates a powerful feedback loop. As your dividend income grows from covering small bills to substantial expenses, you experience wins along the journey, not just at the end. One can become work optional sooner if the chose to invest more in $JEPQ ( ▼ 0.85% ) instead of $VOO ( ▼ 1.11% ) .