Top 5 Covered Call Income Funds for Retirees in 2025: A Comprehensive Comparison

Introduction: Maximizing Cash Flow in Retirement

As retirees in 2025 navigate rising living costs and an uneven investment landscape, the need for sustainable monthly income has never been greater. Traditional dividend or bond funds often yield between 2% and 5% — far below what many retirees require. Covered call income funds, in contrast, routinely generate 8% to 12% annual yields, offering monthly cash flow and smoother returns through equity and option income strategies.

Covered call ETFs hold dividend-paying equities and write call options on those holdings to collect premiums. This approach limits some upside potential but replaces volatile market returns with consistent distributions, well-suited to retirees focused on steady income rather than growth.

1. How Covered Call Income Funds Work

Covered call funds combine two elements:

  • Equity Exposure: The fund invests in large-cap dividend-paying stocks across sectors such as technology, financials, healthcare, and energy.
  • Option Premium Income: The manager sells (“writes”) call options on part or all of the portfolio to generate option premium income.

The premiums received from writing calls are distributed to investors monthly, supplementing dividends. This creates strong recurring cash flow with less volatility than pure equity exposure.

Typical yields in 2025 range from 8% to 12% annually, depending on market volatility and the fund’s call-writing strategy.

2. Selecting Covered Call Funds for Retirement

Key criteria when evaluating covered call income ETFs include:

  1. Yield Sustainability: Look for consistent yields above 8%, not one-time inflated figures from volatile markets.
  2. Monthly Distributions: Consistent or growing Monthly payouts are what retirees seek, so that they have dependable and steady income. Note that Canadian listed income funds tend to have much more consistent payouts than US listed funds.
  3. Portfolio Quality: The best funds hold blue-chip dividend payers or broad market indices.
  4. Expense Ratios: Keep an eye on fees; under 1% is preferable for long-term income efficiency. Funds that use leverage may have higher expense ratios than this so to check value by comparing total returns for any funds you are considering.
  5. Manager Expertise: Skilled option management enhances consistency and protects capital during drawdowns.
  6. Diversification: A mix of U.S. and Canadian covered call ETFs offers currency and market risk balance.

3. Top 5 Covered Call Income Funds for Retirees in 2025

1. SPYI — NEOS S&P 500 High Income ETF

  • Expense Ratio: 0.68%
  • Yield: ~12%
  • Holdings: S&P 500 equities with active call writing overlay
  • Strategy: Combines S&P 500 exposure with actively managed covered calls to generate high monthly income and potential tax-efficient distributions.
  • Overview: Strong balance between yield and underlying portfolio stability, ideal for retirees seeking core U.S. exposure.

2. PBP — Invesco S&P 500 BuyWrite ETF

  • Expense Ratio: 0.29%
  • Yield: ~9.5%
  • Holdings: Tracks the S&P 500 BuyWrite Index (covered calls written on the S&P 500).
  • Overview: A conservative covered call strategy that historically smooths returns, offering stable income and lower volatility relative to the index.

3. GPIX — Goldman Sachs S&P 500 Premium Income ETF

  • Expense Ratio: 0.35%
  • Yield: ~8.5%
  • Holdings: S&P 500 equities with systematic call-writing overlay.
  • Overview: A newer entrant with a focus on capital efficiency and risk-moderated income distributions, catering to investors valuing both diversification and stable cash flow.

4. HDIV.TO — Hamilton Enhanced Multi-Sector Covered Call ETF (Canada)

  • Expense Ratio: 2.55% (high because of leverage costs)
  • Yield: ~10%
  • Leverage: 25%
  • Holdings: A diversified basket of Canadian and U.S. sector-specific covered call ETFs.
  • Overview: Uses modest leverage to enhance yield while maintaining diversification across financials, utilities, energy, and other defensive sectors. Provides high monthly income in CAD.

5. HYLD.TO — Hamilton Enhanced U.S. Covered Call ETF (Canada)

  • Expense Ratio: 2.37% (high because of leverage costs)
  • Yield: ~12%
  • Leverage: 25%
  • Holdings: Portfolio of U.S. covered call ETFs, providing exposure to large-cap U.S. equities.
  • Overview: Offers enhanced income through both option premiums and moderate leverage. Excellent pick for Canadians wanting USD-linked exposure with high monthly yields.

4. Performance and Risk Overview

Covered call income funds have consistently:

  • Delivered higher total cash yields than traditional dividend ETFs.
  • Outperformed in sideways or moderately down markets due to steady option premium income.
  • Lagged in strong bull markets where capped upside from covered calls limits participation.

The core benefit remains predictable, high monthly cash distributions — a critical feature for retirees focused on income stability.

5. Managing Risks in Covered Call Strategies

  • Limited Upside: Returns are capped if markets rise rapidly.
  • Volatility Dependence: Premium income is linked to market volatility levels; stable markets can slightly reduce yields.
  • Diversify by Region and Strategy: Combining U.S. and Canadian funds helps smooth returns and reduce currency concentration risk.
  • Periodic Review: Monitor fund distributions and net asset value trends to ensure sustainability over time.

6. Tax Considerations

Covered call income funds generate payouts from multiple sources, each with distinct tax implications. Understanding the details ensures retirees maximize after-tax income and avoid surprises at tax time.

Registered Accounts

  • Tax Sheltering: In both countries, holding covered call ETFs inside IRAs (U.S.), RRSPs or TFSAs (Canada) shelters all types of income from annual taxation.
  • Simplified Reporting: Registered accounts eliminate the need for tracking annual tax classifications for distributions.

Covered call ETF distributions can include qualified dividends, ordinary/foreign income, short-term capital gains, interest, and return of capital. Reviewing each fund’s annual tax breakdown and leveraging registered accounts can help maximize net retirement income.

It is critical that investors understand the Golden Rules of Asset Location— the exact accounts to place and hold each type of investment for the biggest after-tax gains.

7. Conclusion: Building Reliable Retirement Income

In an environment of inflation and rising living costs, covered call income ETFs remain among the best income tools available to retirees in 2025. These funds balance yield, diversification, and relative stability — offering monthly distributions that can reliably fund retirement expenses.

Key Takeaways:

  • Expect consistent yields of 8–12% annually with monthly payouts.
  • Diversify across both U.S. and Canadian covered call funds for income and currency balance.
  • Focus on proven managers and funds with diversified holdings and transparent strategies.
  • Use tax-advantaged registered accounts to maximize after-tax income returns.

When thoughtfully combined, these five ETFs form the core of a resilient, income-oriented retirement strategy offering peace of mind and financial consistency.