The growth investor needs capital appreciation & the sale of shares for income in retirement. The income investor wants an income stream that can be used for living expenses without selling shares. Until recently, dividend paying stocks were the primary solution for an equity income stream during retirement. But with modern dividend yields so low, that takes a large portfolio. Over the past 5 or 6 years, a flood of new high income ETFs have changed that picture. These new income funds use options strategies & leverage to generate far higher distributions than are available from dividends alone.

But do they work?

According to some retirees, the answer is yes. Critics of this income investing approach say these funds tend to lag an equivalent growth fund. For the most part, that’s true. But some retirees are living higher on the hog than they expected to because of these funds. And they’re posting pics from their sunshine destination vacations to prove it. They can do this because their portfolio distributions run anywhere from 5 to 15%, with some far higher even.

To be fair, given the phenomenal market performance of the past decade & a half, a growth investor could also have spent far more than the traditional 4% Rule allows for. Investing in an S&P 500™ fund, from 2010 onward, could have delivered an inflation-adjusted withdrawal rate of about 12% all the way up to today. The great market performance of recent years makes the 4% Rule look a little outdated, eh? But there’s no guarantee that will continue! Of course most retirees would probably not be in a 100% equity portfolio. Instead they would have invested in the more common 60/40 balanced portfolio. And that portfolio would not have survived that 12% withdrawal rate from 2010 up to today.

Now this is where it gets interesting with income investors. Because they seem to have a bias towards a higher equity allocation. Some are 100% invested in equity income funds. While very few professional advisors would recommend a 100% equity portfolio for a retiree, these new income focused retirees seem to be less troubled about relying on an all equity solution.

So how does that impact the retirement picture?

I’m going to use ETFs from Global X by way of example, because they have globally diversified all-equity portfolios that serve all the strategies we’ve mentioned. Ticker HEQT is a regular growth ETF. EQCC is the same thing with covered calls. While EQCL employs option strategies & leverage. For further comparison, Global X also offers HBAL, a balanced 60/40 portfolio that we can use to represent a more traditional retirement mix. At the time of writing, the yield data below come from each fund’s web page. Be sure to check at each fund’s web page for current data.

It is very important to recognise that this comparison timeline is far too short to be very useful for assessing how funds like these might operate under a greater variety of market conditions, & over a longer time horizon. However, the characteristics displayed are in accord with what you’ll hear in some of the online arguments.

The all-equity HEQT is the best performer for total return. The traditional 40% fixed income allocation of HBAL makes for the poorest performance here, as the bond allocation drags down the total return during times of great market growth. Also as expected, EQCC delivers great income, but at the expense of some of the upside. In this example, over this very short time, the covered call version does outperform the traditional 60/40 portfolio. Finally, the leverage added to EQCL adds back some of the lost covered call upside, though not quite enough to catch back up to the returns of the vanilla all-equity fund. Note that the total return column is with all distributions reinvested.

From a pure numbers perspective, the total return of the regular all-equity fund comes out ahead. Regardless of how the income stream is delivered, total return is always important. The growth investor would typically concentrate on the ‘Total Return’ column & claim the win for HEQT. The income investor might look at the income column & favour the income streams from EQCL or EQCC. It’s worth noting that all these ETFs, with all distributions removed, left a fund that continued to increase the NAV well ahead of the inflation rate. That’s not always the case with all such funds. But even with the high yield funds in this example, you could have spent all that income in 2025 & still grown the NAV!

But again be warned … that’s only over this very short timeline when markets have performed well.

Let’s return to that 100% equity allocation thing we mentioned earlier. All our high yield funds above outperformed the traditional balanced portfolio. Retired growth investors are more likely to have a fixed income or cash component. Moreover, most financial advisors will probably not recommend 100% equity portfolios for retirement, regardless of the investment approach. But retirees investing in these new income ETFs appear to be able to tolerate a higher equity allocation. And that behaviour means that they have outperformed the traditional balanced portfolio in this instance. Indeed some income investors abandoned the balanced approach in favour of their new income strategy.

That’s the crux of the strategy comparison dilemma. Sometimes, we’re not really comparing apples to apples. The first big question is this: should a retiree have an equity allocation of 100%? And if that 100% equity allocation can be justified, would you want to own the growth or the income style portfolio? The answer is, as usual, it depends!

There are studies that support a 100% equity portfolio through the accumulation years and throughout retirement. One of the most recent, & one of the most thorough, is Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice, from July 2025 by Anarkulova, Cederburg, & O’Doherty. This paper is widely discussed amongst the gurus online, but even professional advisors seem reluctant to tell their older clients to jump on board an all-equity portfolio during retirement. However, if this proves to be correct going forward, then an income fund that only slightly (& I’m not sure how to accurately define ‘slightly’ here!) underperforms an equivalent all-equity growth fund might be useful. After all, investing is both a mathematical & a behavioural exercise. If the higher income stream helps a retiree stay the course with a higher equity allocation, might that be a better solution for retirement?

I don’t know the answer to that one either. But it is fun to think about!

We don’t have enough history to understand how these income funds, & their income streams, might survive a more severe crash or a prolonged downturn yet. But I certainly look forward to seeing how things play out going forward. Let’s be real here, if a fund can deliver a 10% yield while growing the underlying NAV faster than inflation, who wouldn’t want a piece of that action, eh! In fact, if it came with inflation security, I’d probably take that bet with a far lower yield!

Unfortunately, I don’t think we can consistently predict such positive outcomes for these income funds. They have done very well in recent years. But their recent successes probably shouldn’t encourage others to retire too early. If your retirement plan was to work towards having a million-dollar portfolio supporting a 5% withdrawal rate, it might not be prudent to flip everything into a fund with a 10% yield & retire earlier with only a half-million-dollar portfolio today. Indeed, any strategy running at its limits won’t work very well if things turn bad. And, given a long enough retirement timeline, there will almost certainly be some bad times ahead. We need to plan our retirement accordingly. On top of those style deliberations, the 100% equity allocation has been part of the solution for some. But it remains an open question for others. We didn’t even get into the active versus passive conversation today! There really are a lot of moving parts to consider with all this. I wouldn’t be surprised to find some investors doing a mix of these strategies. As they tread water, waiting to see how things play out over time.

One last thing to consider is the impact of all this on financial planning exercises. We need to be careful about conflating distribution yield and total return. They are not the same thing. We cannot assume that high cashflows will remain intact for income funds, in the event that a market downturn severely draws down the underlying portfolio. And especially if that happens over longer periods of time. Even if the yield percentage remains high, the actual income stream in dollars could still be seriously reduced. I think sticking with FP Canada’s projection assumption guidelines for financial planning makes sense, regardless of the investing approach. But that’s a whole other conversation that we’ll save for another day. And maybe a downturn will provide the insights we need before I get round to it!

Meantime, wear your water wings in the deep end & take care out there!

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.