How $966,000 Can Generate $4,000 Monthly in Retirement

Based on reporting by David Beren (24/7 Wall St.).

To generate $4,000 in monthly passive income during retirement, investors would need approximately $966,000 divided evenly between two distinct exchange-traded funds, according to a report by 24/7 Wall St. published in early November 2026. By combining preferred stock holdings with high-grade corporate loan pools, retirees can achieve a blended yield of just under 5%, providing a fixed-income alternative to conventional dividend stocks and bank certificates of deposit.

How preferred stock funds generate monthly income

The first component of the two-fund strategy is the iShares Preferred and Income Securities ETF (NASDAQ: PFF). The fund trades near $28 per share and paid $1.46 per share over the past year, yielding 5.1%. It carries an annual expense ratio of 0.45% and makes monthly distributions to shareholders.

PFF primarily holds preferred shares issued by U.S. banks and financial institutions. Preferred stock sits between common equity and corporate bonds, offering set dividend payments similar to bond interest. Financial institutions issue preferred shares because regulators allow them to count toward required capital buffers without diluting common stockholders. Splitting a $966,000 portfolio evenly would place roughly $483,000 into PFF, generating about $24,768 annually or $2,064 per month.

However, investors should note that monthly payouts from preferred stock funds can fluctuate significantly. PFF paid approximately 16 cents per share in its latest monthly distribution but paid around 3 cents per share in March. Annualizing a single recent payment yields 6.7%, which overstates actual annual performance. Additionally, PFF's share price has declined by about 2% over a five-year period because preferred shares tend to fall in value when long-term interest rates increase.

The role of AAA-rated CLO funds in yield strategy

The second component is the Janus Henderson AAA CLO ETF (NYSEARCA: JAAA), which manages approximately $29 billion in assets. The fund invests in the AAA-rated top layers of collateralized loan obligations (CLOs) managed by firms including Carlyle, Ares, and Bain Capital Credit. Because the AAA tranche receives payouts first, underlying loan losses must eliminate all lower layers before the top tranche is impacted.

JAAA trades near $51 per share and paid about $2.43 per share over the past 12 months, delivering a 4.8% yield through monthly payouts. Allocating $483,000 to JAAA yields approximately $23,232 per year, or $1,936 per month. Combining both funds creates a monthly income stream of roughly $4,000.

Unlike fixed-rate funds, JAAA holds floating-rate business loans that reset alongside short-term interest rates. Its distributions move in tandem with Federal Reserve policy. The Fed target rate remained at 3.75% for most of 2026 before rising back to 4% in September. Consequently, JAAA's monthly checks ranged from 18 to 21 cents in 2026, down from 21 to 25 cents throughout most of 2025.

How interest rate movements impact portfolio balances

The two fund types offer a balance against interest rate fluctuations. When long-term interest rates rise, PFF's fixed payouts become less attractive relative to new bonds, putting downward pressure on its share price. Conversely, JAAA generates higher income when short-term interest rates climb. A rate spike that depresses PFF's share price often boosts JAAA's monthly distributions simultaneously, softening the net impact on an investor's overall portfolio.

However, long-term and short-term rates do not always move together, and severe credit market stresses can cause both funds to drop at the same time. For comparison, a 10-year U.S. Treasury bond pays approximately 4.9%. Both funds yield slightly higher returns to compensate investors for market and credit risks not associated with government debt.

What this means for retirees and tax planning

For individuals planning retirement cash flows, tax treatment represents a critical consideration:

• Taxable accounts: Income from JAAA is taxed at ordinary income rates because payouts derive from loan interest. Some PFF distributions may qualify for lower dividend tax rates if holding period rules are met (more than 60 days for standard preferreds and more than 90 days for specific preferred shares), though much of the income falls outside qualified rules.
• Traditional IRAs: Income grows tax-deferred inside an IRA, but withdrawals are taxed as ordinary income, removing the tax benefit of qualified dividends.

Investors evaluating income options frequently review 5 investment funds to determine how specialized debt and preferred equity compare with standard holdings. Financial analysts suggest reviewing annual payouts every 12 months against spending targets to adjust capital allocations if central bank policy alters floating yields over time.

Sources

• The Income Most Retirees Skip: How Much You Need in PFF and JAAA to Collect $4,000 a Month — reported by David Beren, 24/7 Wall St.