Our Income Plan Worked So Well
We Needed a Plan for the Surplus
In January 2022, The Kelly Letter launched a rules-based income system that converts market volatility into steady monthly cash flow without speculation, forecasting, or emotional calls.
It succeeded to such a degree that the most common complaint doubled as an encouraging field report: there was no plan for managing surplus income. So in 2025, Jason Kelly designed one. It launches on January 5, 2026.
The upgraded Income Sig plan:
- Improves Total Return — by more than 16% in testing.
- Is Flexible — with adjustable thresholds for growth and income.
- Can Go the Distance — without capital erosion over time.
This public page provides an overview. Full rules and weekly guidance are available only to Kelly Letter subscribers.
The Problem With Conventional Income Investing
Most income strategies emphasize interest rates and dividend yields. In practice, you’re lucky to eke out a 5% return. And with the Federal Reserve now lowering interest rates, even that will be harder to come by.
It seemed that covered-call funds might come to the rescue, raising hopes with double-digit yields. But what seems too good to be true rarely is, and the bulk of covered-call fund cash flow is return of capital — “paying back” the investor with their own money.
In his initial Income Sig research in 2021, Jason found that if we expand the definition of “income” to include other sources of cash, there’s plenty of it about. That’s what he set out to do. He wanted to squeeze income from a low-yield turnip.
The key breakthrough was applying a rules-based profit skim on a stock fund’s growth beyond its quarterly target. Some of that surplus remains in the plan, rebalanced among its three funds, boosting capital growth. The rest is taken as a distribution, boosting income.
That was all part of the original Income Sig. The upgrade takes this a step further by separating the functions.
The “Generator” produces most of the growth and income. A portion of that flow is directed to the “Reserve” for stability, where it’s invested in less aggressive funds. These produce less growth and income, but with lower volatility. Monthly draws are taken from the Reserve.
By separating these roles, the structure allows growth and income to reinforce each other rather than compete.
Income Sig was built on a different premise:
How Income Sig Works
Income Sig is a rules-based income system built around three distinct fund roles: an income slot, a stock slot, and a bond slot. Each serves a specific purpose, and each is governed by clear allocation targets.
At the end of every quarter, the plan rebalances these three slots to a predetermined allocation. This regular rebalance prevents any slot from taking over the plan and makes sure profits are harvested rather than left to compound unused.
The stock slot produces most of the plan’s upside.
When the market is strong and this slot grows beyond its target allocation, the plan doesn’t simply let it run. Instead, it applies a profit skim to the excess, harvesting a portion of surplus gain beyond the quarterly target. The remainder stays in the system and is rebalanced across all three slots.
This approach retains part of the surplus for continued growth, and skims the rest to turn market gains into usable cash flow. The process is automatic, unemotional, and repeatable.
All profit skims, along with distributions generated by the three slots, flow into a separate account that sits alongside the core plan, now called the Generator. This Reserve account exists for one reason: to receive and manage income produced by the Generator.
Over the plan’s first four years, cash flowing into the Reserve grew well beyond what most investors needed to spend. That surplus was the catalyst for the upgrade.
Let’s take a closer look at the Generator/Reserve separation.
The 2026 Upgrade: From One Engine to Two
Rather than sending all income directly from the Generator to the investor, the upgraded Income Sig accumulates income in the Reserve, where it’s reinvested, stabilized, and drawn from on a schedule. Monthly payments to the investor are funded by selling bond-fund shares in the Reserve, not by disturbing the core engine that generates returns.
Crucially, this does not change the plan’s simplicity. Income Sig still has one entrance point and one exit point.
New contributions enter the system through the Generator’s bond slot.
Income payments leave the system from the Reserve’s bond slot.
Everything in between — the growth, the distributions, the profit skims, and the rebalancing — happens inside the machine according to predefined rules.
Using the upgraded terminology, Income Sig now operates in three clear phases:
- Add capital through the Generator.
- Grow and harvest income through disciplined rebalancing and profit skims.
- Take income from the Reserve, without disrupting the Generator.
That separation is the core of the upgrade. It’s the reason Income Sig can generate income without forcing you to choose between growth and durability.
The 2026 upgrade introduced a fundamental shift — one comprehensive plan with two engines:
The Generator
- Creates income and long-term growth
- Converts volatility into surplus gains for harvesting
- Follows quarterly rebalancing rules
The Reserve
- Protects income and pays out steadily
- Maintains modest growth with distributions
- Reduces impact from market turbulence
The two engines are deliberately separated.
Growth is never forced to fund spending at the wrong moment.
Income is not disrupted by market stress.
This is what makes Income Sig a true retirement income system, not just a yield strategy.
Structure You Can See Working
Below are two charts showing how the initial version of Income Sig performed. These are not projections or backtests, but drawn from real operational results.
The plan was born on a battlefield: the beginning of the 2022 bear market caused by the Federal Reserve’s abrupt and rapid interest-rate hikes.
This was particularly unfortunate for two reasons: it was a rare bear market that pushed both stocks and bonds down simultaneously, and Income Sig had no time to bulk up in advance. Had the bear market happened three years after the plan started, it would have fared much better.
But there was a silver lining. The results demonstrated that even in a worst-case scenario, Income Sig worked. It followed its rules, bought cheaper prices, recovered, and began building up what was then called its Repository but is now called its Reserve.
This next chart shows that, after its bear-market buying and recovery, the plan’s income engine roared back with substantial profit skims in 2024 and 2025.
These charts show Income Sig’s actual results before the upgrade. It survived the bear market, and with its upgraded version is even better positioned to thrive through future ones. Your plan can begin at a 70/30 Generator/Reserve allocation if you need income immediately, or a 100/0 allocation if you don’t need income sooner than three years and can allow the Generator to build the Reserve through its operations.
This Makes a Better Retirement
The Traditional Problem
Conventional income investing lives with a permanent internal conflict:
- Spend too much, and growth deteriorates.
- Protect too much, and income stagnates.
- Chase yield, and capital erodes.
The Income Sig Solution
Income Sig resolves this conflict through role separation:
- One side generates growth and income.
- One side manages the result.
- Capital and income increase over time.
Income Sig’s objective rules and math will help your savings go the distance.
The 4% rule is a guideline suggesting you can safely withdraw 4% of your savings in the first year of retirement, then adjust that dollar amount annually for inflation, with a high chance your money will last 30 years. It’s based on historical market data and a balanced stock/bond portfolio.
The growth of Income Sig’s monthly target payment began at a slower pace than the 4% rule as a result of the 2022 bear market setback. However, it will surpass the 4% rule’s pace in 2026 and far exceed it in the years after.
That would have been the case with the original Income Sig, but the outpacing will be bigger with the upgraded version.
Of course, you’re free to set a different withdrawal rate from your plan. It’s easy to adjust as you monitor your Reserve balance, and easy to adjust the flow of new money into the Reserve with the Generator’s profit-skim rate. The subscriber site calculator offers this functionality.
What Subscribers Are Saying
The comments below were received from subscribers after the new Income Sig was announced in the December 7, 2025 Kelly Letter.
Love the Income Sig update! I don’t currently use it (just 9Sig), but it’s definitely compelling, and I anticipate getting on board in the next few years. Very cool!
What a phenomenal job on the research and effort done to the new upgraded Income Sig. You have really shown your stripes here, Jason + team. Thanks for everything!
Great letter as always. Jason makes me feel better every Sunday morning.
I’m so impressed with the changes to Income Sig!
Most investment professionals with your level of success are taking off the entire holiday season. Meanwhile, you’re delivering PhD-level research to support improvements on an already great foundation.
I love your new setup. As a member since 2012, I am always happy to see the teacher always the student. Thank you.
Who Income Sig Is For (and Who It Isn’t)
Well Suited For
- Investors seeking structured monthly income
- Those who prefer rules over feelings
- People who value consistency over excitement
- Retirees and pre-retirees who want income without constant decision-making stress
Not Designed For
- Short-term traders
- Headline-driven decision makers
- People chasing “what’s hot now”
- Anyone seeking a quick, speculative win
Income Sig rewards patience and discipline. It’s indifferent to headlines. Its only excitement comes from watching a set of rules work to keep growth and income rising over time.
What You Receive as a Kelly Letter Subscriber
The Income Sig upgrade is available only inside The Kelly Letter. As a subscriber, you’ll receive:
- Portfolio updates every Sunday morning
- All trading signals and allocation rules
- Complete Income Sig Generator and Reserve guidance
- Quarterly rebalancing instructions
- Access to the private subscriber forum
- The calculator and visual tools to support implementation
- Ongoing clarification and context in each Sunday letter
Everything runs live with updates every Sunday, trades every quarter.
Start 2026 With a Structure Built to Serve You for Decades
The upgraded Income Sig launches with the first Kelly Letter of the new year. If you’d like to start your plan alongside it, now’s the time to subscribe:
- Begin the year with a complete, rules-based income plan.
- Follow the system from Day One — no catch-up required.
- Gain clarity every Sunday with the latest data.
- Stop reacting to headlines and second-guessing your decisions.
If you want 2026 to be the year your retirement income becomes structured, predictable, and guided by rules rather than emotion, this is where it begins.
We hope to see you on the list.
“Great letter, as always. Makes me feel better every Sunday morning. I wish I would have found you years ago.”
— Anthony, December 7, 2025
