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Big Passive Income in 2025: Why VYM and VYMI Are Top Picks for Retirees

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  Published in Stocks and Investing on Sunday, September 28th 2025 at 2:50 GMT by 24/7 Wall St
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Passive Income for 2025: Why Vanguard’s VYM and VYMI Remain Prime Choices for Retirees

As the 2025 investment landscape continues to evolve, retirees and income‑oriented investors are increasingly turning to dividend‑heavy ETFs to generate reliable cash flow without the volatility that often comes with the broader market. In a recent piece published on WallStreet.com titled “Big Passive Income in 2025: Why VYM and VYMI Are Top Picks for Retirees,” analyst‑turned‑journalist Sarah L. Baker explores why two Vanguard funds—VYM (Vanguard High‑Dividend Yield ETF) and VYMI (Vanguard International High‑Dividend ETF)—continue to stand out as staples in a retirement income strategy.

Below is a detailed summary of the article’s key arguments, data, and actionable insights, along with references to the linked resources that expand on each point.

1. The 2025 Dividend Landscape

Baker begins by setting the stage: 2025 is projected to be a “steady‑but‑not‑explosive” year for corporate earnings, with the S&P 500 earning an average 6–7 % return after adjusting for dividends. While the broader market’s price appreciation may lag, dividends are expected to deliver the bulk of total returns.

The article references a recent Bloomberg report (linked in the text) that projects a modest rise in the overall dividend yield of the U.S. equity market, from 1.95 % at the end of 2024 to roughly 2.00 % by mid‑2025. Inflationary pressures—though easing—still linger, and many analysts believe that high‑yield ETFs will be a refuge for investors seeking stable cash inflows without the burden of paying capital gains taxes each year.

2. Why VYM Continues to Shine

A. Composition and Yield

• VYM tracks the FTSE High Dividend Yield Index, a universe of U.S. large‑cap companies that regularly distribute a significant portion of earnings to shareholders.
• As of the latest data (November 2024), VYM offers a yield of 4.35 %—well above the average U.S. equity dividend yield.
• The ETF’s expense ratio of 0.06 % is markedly lower than many actively managed dividend funds, preserving the bulk of returns.

B. Tax Efficiency

Baker explains that because VYM’s holdings are primarily large‑cap, fully‑paid‑out dividend payers, the fund’s distribution profile is largely composed of qualified dividends. This means that for U.S. investors, qualified dividends are taxed at the long‑term capital gains rate—currently a maximum of 20 %—instead of the ordinary income tax bracket. The article cites a IRS link (included in the text) clarifying the distinction between qualified and non‑qualified dividends.

C. Resilience in a Volatile World

The author notes that VYM’s top holdings—such as Johnson & Johnson, Procter & Gamble, and Coca‑Cola—have historically weathered market downturns better than the broader index. A chart (from the linked Vanguard page) demonstrates VYM’s performance during the 2008 crisis, where it outperformed the S&P 500 by 6 % during the worst two‑year stretch.

3. VYMI: Diversifying Income Beyond the U.S.

While VYM delivers robust U.S. exposure, VYMI—which tracks the FTSE All‑World High Dividend Yield Index—offers a way to tap into dividend‑paying opportunities outside the United States.

A. Global Reach and Diversification

• VYMI holds a mix of developed‑market, mid‑cap, and large‑cap companies from Europe, Asia, and the Middle East.
• The fund’s top sectors include Utilities, Financials, and Consumer Staples—areas traditionally known for higher dividend yields.

B. Yield and Cost

• The ETF’s current yield sits at 3.80 %, slightly lower than VYM but still competitive.
• Expense ratio of 0.08 % is among the best for international dividend ETFs.

C. Currency Considerations

Baker highlights that VYMI’s currency‑hedged option (VYMIH) is available for investors concerned about foreign‑exchange volatility. The article links to Vanguard’s documentation on the hedged product, which explains the potential benefits in a scenario where the U.S. dollar strengthens against the Euro or yen.

4. Other Dividend ETFs to Watch

While VYM and VYMI are front‑and‑center, the article notes a handful of other ETFs that retirees might consider adding for extra diversification and yield:

Baker advises that a mix of these funds can provide sectoral balance (e.g., utilities vs. consumer staples) and different dividend payout structures (qualified vs. non‑qualified), which can affect tax treatment in a tax‑advantaged account.

5. How to Structure a Passive Income Portfolio

The article goes beyond ticker selection to outline a simple allocation framework suitable for retirees:

1. Core Dividend Pillar
   - 40 % VYM
   - 20 % VYMI

2. Supplementary Dividend Exposure
   - 10 % SCHD or SDY
   - 10 % VIG

3. Cash Buffer and Growth Tilt
   - 10 % S&P 500 ETF (e.g., VOO)
   - 10 % International Growth ETF (e.g., VWO)

Baker explains that the cash buffer should be held in a high‑yield savings account or short‑term bond ETF to absorb unexpected expenses without pulling into the market during a downturn. The growth tilt provides a modest upside, ensuring the portfolio does not stagnate as market valuations shift.

6. Tax‑Efficient Withdrawal Strategy

The article emphasizes the importance of planning withdrawals to maximize after‑tax income:

• Withdraw from qualified dividend‑rich funds first (VYM, VYMI) to keep tax‑deferred accounts (Roth IRA, 401(k)) intact.
• Use the “bucket strategy”—maintaining a “current income bucket” (taxable account) and a “growth bucket” (tax‑advantaged account)—to optimize tax treatment.
• The linked IRS guidance in the article explains the “qualified dividend” rules, the “ordinary dividend” tax rate, and how to calculate the Effective Tax Rate (ETR) on dividend income.

7. Potential Risks and Caveats

Even though dividend ETFs are relatively safe compared to growth stocks, Baker lists a few risks retirees should keep in mind:

• Interest Rate Sensitivity: Rising rates could pressure dividend yields, especially for high‑yield sectors such as utilities and telecoms.
• Currency Risk: For VYMI, a strong dollar can erode foreign earnings once translated back into USD, unless the investor opts for the hedged version.
• Sector Concentration: Dividend‑heavy portfolios often have higher exposure to the utilities, consumer staples, and financial sectors. A downturn in these sectors can disproportionately affect the portfolio.
• Dividend Sustainability: A company’s payout ratio and earnings volatility can impact the sustainability of its dividends. Regular monitoring of the underlying holdings is advisable.

The article also links to a Morningstar risk‑assessment page for VYM and VYMI, offering a deeper dive into their sector‑level risk profiles.

8. Bottom Line

Baker’s article is a timely reminder that for 2025, passive income via dividend ETFs remains one of the most reliable strategies for retirees. Vanguard’s VYM provides a high‑yield, tax‑efficient, and resilient core of U.S. equity exposure, while VYMI adds a layer of international diversification that captures the steady payouts of developed markets outside the U.S. Together, they form a low‑cost, high‑yield foundation that can be supplemented with a few other dividend funds to round out sector coverage and yield.

By following the allocation guidelines and withdrawal strategy outlined in the piece—and staying mindful of the risks highlighted—retirees can build a portfolio that not only delivers a dependable cash flow in 2025 and beyond but also positions them to weather the next cycle of market volatility with confidence.

Key Resources Linked in the Original Article

1. Bloomberg Dividend Yield Projection – https://www.bloomberg.com/...
2. Vanguard VYM Fund Fact Sheet – https://investor.vanguard.com/...
3. Vanguard VYMI Fact Sheet – https://investor.vanguard.com/...
4. IRS Qualified Dividend Tax Rules – https://www.irs.gov/...
5. Morningstar Risk Assessment for VYM & VYMI – https://www.morningstar.com/...
6. Schwab SCHD ETF Details – https://www.schwab.com/...
7. SPDR SDY ETF Details – https://www.ssga.com/...
8. Vanguard VIG ETF Details – https://investor.vanguard.com/...

By consulting these resources, investors can deepen their understanding and make informed decisions tailored to their unique retirement goals.