How to Create a Second Social Security-Like Monthly Income Stream From Scratch Using Dividends

One portfolio, two ETFs, and a monthly investment that can eventually rival a Social Security payment may sound far-fetched, but the math becomes clearer when you start from a zero balance.

Imagine another deposit arriving every month in an amount similar to the Social Security check you already rely on. The average retired worker receives $2,170 a month in 2026, according to the Social Security Administration’s COLA fact sheet. That adds up to $26,040 a year, which is the income goal here.

This strategy uses one portfolio divided evenly between two funds: Fidelity Low Volatility Factor ETF (NYSEARCA:FDLO) and Vanguard International High Dividend Yield ETF (NASDAQ:VYMI). The yields discussed below are trailing figures, meaning they reflect each fund’s payouts over the previous year compared with the current share price.

What Size Portfolio Is Needed

Combined, the two funds produce an income yield of about 2.5%. To generate $26,040 annually at that rate, you would need roughly $1,042,000 invested.

That may seem like a daunting target if you are beginning with nothing, so the next question is how much you would need to contribute each month to reach it. The estimates below assume every dividend is reinvested, returns compound monthly, and there are no fees or taxes:

• With a 6% average annual return, you would need to invest about $3,582 a month for 15 years, $2,254 for 20 years, or $1,503 for 25 years.
• With an 8% average return, the monthly amounts fall to about $3,010, $1,768, and $1,095.

Markets rarely move in a straight line, and the goalposts keep shifting. The current COLA rate is 3.6%, so the amount you are trying to match rises over time.

Fidelity Low Volatility Factor ETF

FDLO invests in large and mid-sized U.S. companies whose shares have historically been less volatile than the overall market and whose earnings have tended to be steadier. Apple makes up about 8% of the fund, while Microsoft accounts for about 6%. Other holdings include steady dividend payers such as Johnson & Johnson, Verizon, and Duke Energy.

This ETF makes up half of the portfolio. Its yield is around 1.3%, which covers roughly $7,100 of the annual income target.

The key point is that FDLO is intentionally a low-yield fund. In this plan, its role is to provide a smoother ride and long-term growth. Its adjusted share price rose 251% over the past decade.

Its quarterly distribution also increased, climbing from 10.7 cents per share in early 2017 to 27.9 cents in the most recent March payment. Before buying, check Fidelity’s fund page for the latest expense ratio.

Vanguard International High Dividend Yield ETF

VYMI follows companies in developed and emerging markets outside the United States that are expected to pay above-average dividends. It excludes real estate investment trusts. The fund charges 0.07% annually, or about $7 for every $10,000 invested.

The other half of the portfolio is allocated to VYMI. With a yield of about 3.7%, it produces roughly $19,000 a year, making up most of the target income.

Foreign governments often withhold part of dividend payments before they reach investors, but in a taxable account the IRS may allow a foreign tax credit. If the foreign taxes are reported on Form 1099-DIV and total no more than $300, or $600 for married couples filing jointly, Form 1116 is not required.

In an IRA, those dividends are not reported on your tax return, so there is nothing to offset with a foreign tax credit. Exchange-rate movements can also affect the dollar value of the payouts. The most recent quarterly distribution was $0.82 per share, down from $1.26 in the prior quarter.

Choosing Between a Roth IRA and a Taxable Account

A Roth IRA allows tax-free withdrawals later, as long as you are at least 59½ and have passed the five-year waiting period that begins with your first Roth contribution under 26 U.S.C. § 408A(d)(2). Contribution limits also apply.

A taxable account lets you preserve VYMI’s foreign tax credit, but dividend income is taxed each year. Some investors split the funds between account types: FDLO in the Roth, where growth can compound tax-free, and VYMI in a taxable account, where the credit still applies. In practice, many savers would need both types of accounts because the monthly contribution amounts shown above can exceed a single Roth limit.

The Target and the Habit That Makes It Possible

The overall goal is about $1,042,000. At a 6% return over 20 years, that would require roughly $2,254 in monthly investing. More time or higher returns would reduce the amount needed.

The most important habit is to automate the deposits and reinvest every dividend until you are ready to use the income. Every estimate in this plan assumes the distributions continue buying more shares.

If you want the full approach, our free Paycheck Portfolio guide explains how to turn a lump sum into a monthly income stream, including the fund mix, the payout schedule, and the withdrawal order.