Warning: This article is for informational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any specific securities. I personally own positions in both XYLD and VOO; however, my ownership should not be interpreted as an endorsement or recommendation for others to purchase these funds. Investment decisions should be based on your individual financial goals, risk tolerance, and personal circumstances.
Before making any investment, it is advisable to consult with a licensed financial advisor or conduct your own research. Past performance is not indicative of future results, and all investments carry risk. The strategies and examples shared in this article are intended solely to illustrate one approach to retirement planning and may not be suitable for everyone.
Have you ever wondered if there’s a way to make money last forever in retirement? Well, there’s a modern retirement plan that can help you generate cash flow each month while still growing your money for the future. We’re calling it “The Infinite Money Glitch.” This plan is laid out with these two funds: XYLD and VOO. Here’s how it works and how you can set up this plan for yourself. (Note that these are not the only ones that would work, but we chose them for the sake of being specific and actionable.)
What is the Infinite Money Glitch?
The Infinite Money Glitch combines two types of investments to give you a steady stream of income and growth:
XYLD: This is an investment that generates monthly cash flow. XYLD earns money by collecting dividends and selling options on stocks in the S&P 500. This means you get cash coming in every month, which you can use for living expenses.
VOO: This investment tracks the S&P 500, which includes 500 of the biggest companies in the U.S. VOO doesn’t pay as much cash every month, but it’s great for long-term growth, helping your money grow over time and keeping up with inflation.
With this plan, you’ll use XYLD for regular monthly income and VOO to grow your savings for the future. It’s like having both a paycheck and a savings account that grows!
How it Works?
Calculate Monthly Expenses
To make this plan work, you first need to figure out your monthly expenses. Here’s how:
- List all your monthly expenses, like housing, food, bills, and fun money.
- Add everything up to get your total monthly spending.
- Add a 20% buffer. This extra 20% is a safety pad for unexpected expenses or future cost increases.
Let’s look at an example.
Example:
- Housing: $1,200
- Utilities: $200
- Groceries: $500
- Entertainment and Extras: $300
- Health and Insurance: $300
Total Monthly Expenses: $2,500
Now, let’s add the 20% pad.
- 20% of $2,500 = $500
Total with Pad: $2,500 + $500 = $3,000
In this example, you would need $3,000 each month to cover your costs and have a little extra.
Match XYLD’s Monthly Income to Your Needs
Now, you want to set up enough money in XYLD to generate your required monthly income. Based on XYLD’s historical average annual return of 11.44%, we can calculate how much you need to invest to cover your expenses.
- Convert the annual yield to a monthly yield by dividing 11.44% by 12 months, which gives roughly 0.95% per month.
- Divide your total monthly expenses (with the 20% pad included) by this monthly yield to find out how much to invest.
Example Calculation:
- Monthly expenses with pad: $3,000
- Monthly yield of XYLD: 0.95%
- Calculation: $3,000 ÷ 0.95% = $315,789
So, you would need to invest about $315,789 in XYLD to generate $3,000 per month based on its historical average return.
Note: Returns can vary, and this example is based on XYLD’s historical average return. Actual results may differ, so it’s a good idea to monitor performance and adjust as needed.
Invest in VOO to Combat Inflation
The other half of the plan is investing in VOO. VOO’s value grows over time, helping you keep up with inflation and making sure you don’t run out of money down the road. While XYLD is your “paycheck,” VOO is your “savings account.”
By splitting your investments between XYLD and VOO (ideally 50/50), you’re setting yourself up for steady monthly income and long-term growth.
Comparing the Infinite Money Glitch with the 4% Rule
The Infinite Money Glitch and the 4% Rule are two popular retirement strategies, each with its own strengths and potential drawbacks. Let’s break down both approaches, explore where each one excels, and look at areas where each might fall short.
What is the 4% Rule?
The 4% Rule is a traditional approach to retirement planning. It suggests that you can safely withdraw 4% of your retirement savings each year, adjusted for inflation, without running out of money over a 30-year period. This rule is based on the assumption that a well-diversified portfolio (often 60% stocks, 40% bonds) will provide enough growth to offset these withdrawals over time.
What is the Infinite Money Glitch?
The Infinite Money Glitch combines XYLD (for monthly income) and VOO (for growth) to generate cash flow while also building wealth. XYLD pays a high yield and generates steady income, which can cover living expenses, while VOO provides long-term growth to help protect against inflation. Typically, this strategy uses a 50/50 split between XYLD and VOO.
Checklist to Maximize the Infinite Money Glitch
Pay Off the Mortgage
If you own your home free and clear, you’ll have fewer expenses, making it easier to live on XYLD’s cash flow.
Build a 6-Month Emergency Fund
Life can throw surprises at you. Having 6 months’ worth of expenses saved in cash ensures you don’t have to dip into investments when unexpected costs pop up.
50% XYLD, 50% VOO
Balancing your investments between XYLD and VOO keeps your income steady while allowing your savings to grow for the future.
Both the Infinite Money Glitch and the 4% Rule have their own unique advantages and potential downsides:
- Infinite Money Glitch may suit retirees who want consistent monthly cash flow and are comfortable with the risks associated with a high-yield strategy like XYLD.
- 4% Rule could be a better choice for those who prefer a stable, time-tested approach and don’t want to depend on high-yield funds for income.
Who Would Benefit the Most?
The Infinite Money Glitch can be particularly useful for someone with limited retirement savings, as it offers a way to generate regular income while still allowing for potential growth. With a mix of high-yield XYLD for monthly cash flow and VOO for long-term appreciation, this strategy can help bridge income gaps and stretch smaller retirement funds. For retirees with less savings, the consistent income from XYLD can cover essential expenses without needing to sell off investments, giving VOO time to grow and helping the portfolio gain ground over time. However, those with limited savings should be mindful of the risks, as high-yield funds can fluctuate. That is why we recommend always having a 6-12 month emergency fund.
10 Year Summary Comparison
This is a conservative summarization using historical data with the stock market at 7% yearly growth. It also doesn’t include taking hits from down markets.
Final Thoughts
The Infinite Money Glitch combines XYLD and VOO to give you a steady income and a way to grow your wealth. By calculating your expenses, setting up your XYLD income to match, and investing in VOO, you’re on track for a strong retirement plan that keeps up with inflation and will never leave you short-changed.
