There’s no single best income ETF. Retirees usually combine a few: Australian share income ETFs for franked dividends, global or infrastructure ETFs to spread the risk, bond and hybrid ETFs for steadier income, and a cash ETF for the buffer. Judge them on total return, not yield alone, watch for one-off special distributions, and remember that high yield often means slower growth.
“Which ETF pays the most?” is the wrong first question in retirement. The right one is: which mix gives you a steady income, keeps up with inflation and doesn’t shrink your capital? Here are the main types, with examples from our income ETF tracker.
1. Australian shares income
The main source of franked income. In pension phase, franking credits are refunded in full, so the after-tax income is higher than the yield shows.
🎥 Watch me explain this
▶10:45Income without just buying the banksGlobal X Interview: Income, Gold, Covered Calls & GARP | Marc Jocum · from 10:45 · read the post
▶1:59:00“I’m going all in on VHY for my Australian exposure”Live ETF Q&A: Tech breaks down as the Aussie market finds its feet · from 1:59:00 · see the Q&A notes
2. Global shares income
Spreads your income beyond Australian banks and miners. Usually no franking, and currency moves affect returns.
Covered call ETFs (JEPI, UMAX, and in Australia AYLD and YMAX) sell options on their holdings to boost income. You get higher income in flat markets, but give up much of the growth when markets rise strongly.
🎥 Watch me explain this
- ▶17:21Covered calls explainedGlobal X Interview: Income, Gold, Covered Calls & GARP | Marc Jocum · from 17:21 · read the post
▶55:12Covered calls and monthly incomeUnder the hood of an ETF with David Tuckwell · from 55:12 · read the post
3. Property and infrastructure
Rents, tolls and utilities: steady income, but sensitive to interest rates.
4. Hybrids, credit and floating rate
Higher income than cash, often paid monthly. Hybrids and subordinated debt are more complex and can fall in a crisis; read the PDS.
5. Bonds
Lower income, but they tend to hold up better when shares fall, which makes them useful in a core like VDGR or VDHG.
6. Cash
Where we hold the cash buffer that pays your pension. More in where to keep your cash buffer.
7. Yield traps
- Special distributions. A one-off payout can make the 12-month yield look much higher than normal: SPDR’s WDIV showed 10.3% and SYI 7.0% this year. Check the typical yield.
- Yield at the cost of growth. If the price falls over time, a high yield can still leave you with less. Look at total return.
- Concentration. Many Australian high-yield ETFs are heavy in banks and miners.
- Complexity. Covered calls, hybrids and credit can behave very differently from shares in a downturn.
🎥 Watch me explain this
- ▶22:09Yield, franking and total returnGlobal X Interview: Income, Gold, Covered Calls & GARP | Marc Jocum · from 22:09 · read the post
▶7:30Lesson 6: total return before dividends7 ETF investing lessons from 20 years · from 7:30 · read the post- ▶48:36Tax and the distribution trapUnder the hood of an ETF with David Tuckwell · from 48:36 · read the post
8. How we use income ETFs
We don’t build a retirement portfolio from income ETFs alone. Our approach: a cash buffer pays your pension, a diversified core does most of the growing, and income ETFs can be satellites, bought when they’re in an uptrend. Distributions from everything flow into the buffer. See how to pay yourself from ETFs.
Our free retirement plan works out your Age Pension year by year, your drawdown and a stress-tested ETF portfolio, as a PDF.
General information only, not personal advice. It doesn’t consider your objectives, financial situation or needs. Super, tax and Centrelink rules are complex and change; check with Services Australia, your fund or a licensed adviser. Examples are illustrations using the assumptions shown. ETFs named are examples, not recommendations; consider the PDS and TMD. Past performance is not a reliable indicator of future performance.
Frequently asked questions
What is the best income ETF for retirees in Australia?
There’s no single best. Retirees often combine Australian share income ETFs for franked dividends, global or infrastructure ETFs, bond or hybrid ETFs and a cash ETF, chosen for total return and risk, not yield alone.
Do income ETFs pay franking credits?
Australian share income ETFs such as VHY, HYLD and ZYAU are usually partly franked. In super pension phase, franking credits are refunded in full.
Are covered call ETFs good for retirement income?
They pay higher income in flat or falling markets, but give up much of the upside when markets rise. They can suit part of an income portfolio, not all of it.
Why does an ETF’s yield look so high?
Often because of a one-off special distribution in the last 12 months. Check the typical yield and the total return.
Should I only hold income ETFs in retirement?
Usually not. A portfolio built only for income can grow too slowly to keep up with inflation. A diversified core plus a cash buffer is often more reliable.