For many beginner investors, exchange-traded funds (ETFs) offer a simple, cost-effective way to gain exposure to a wide range of markets. But an important question often arises: is it really possible to retire by investing only in ETFs? In other words, can a passive investment strategy deliver enough long-term growth and income to fund your future lifestyle without relying on active stock picking or complex financial products?
Let’s take a closer look at the real potential—and limitations—of ETF-based retirement investing.
Why ETFs Are So Popular for Long-Term Investors
ETFs have surged in popularity over the past decade for good reason. They are diversified, liquid, and typically come with lower fees compared to actively managed funds. According to Statista, assets in ETFs globally surpassed $ 11 trillion in 2023, with the U.S. leading the way.
Most ETFs track a market index—like the S&P 500 or the MSCI World Index—giving investors broad exposure to hundreds or even thousands of companies. This means you don’t have to bet on individual stocks. You just ride the market.
If you had invested $10,000 into a low-cost S&P 500 ETF in January 2013, by the end of 2023 your portfolio would have grown to approximately $33,000, assuming an average annual return of 12.5%, including reinvested dividends. Not bad for a passive approach.
The Power of Consistency and Time
The strength of ETF investing really shines when paired with long-term thinking and consistency. Using a strategy like dollar-cost averaging (investing a fixed amount every month), investors reduce the risk of buying at market highs and benefit from compounding growth over decades.
Let’s consider a practical example: investing € 300 per month into a global equity ETF that returns 7% annually. After 30 years, you would accumulate nearly € 340,000. Bump it up to € 500/month and the figure exceeds € 570,000. That might not buy you a private island, but it could form the backbone of a solid retirement plan—especially when paired with other savings or pension sources.
But Is That Really Enough?
Here’s where reality sets in. While ETFs offer a powerful tool for building wealth, they don’t guarantee retirement success on their own. You still need to:
- Understand your target number: How much income will you need in retirement? Will you withdraw 3%, 4%, or more annually?
- Account for inflation: A 7% return quickly becomes less attractive if inflation erodes 3% of your purchasing power.
- Consider taxes: Dividends and capital gains from ETFs may be taxed differently depending on your country. In Italy, for example, capital gains from financial instruments are taxed at 26%, unless held in tax-advantaged wrappers like a PIR or pension scheme.
- Manage risk: Equity ETFs can be volatile. A portfolio crash early in retirement could deplete your funds faster than expected (the “sequence of returns” risk).
What About Income?
While accumulating a large ETF portfolio is achievable, drawing a stable income from it is another story. Dividend ETFs can help here, offering consistent payouts. For instance, Vanguard’s FTSE All-World High Dividend Yield ETF (VHYL) yielded around 4.2% in 2024. But yields can fluctuate, and high-yield ETFs may concentrate on specific sectors, increasing risk.
Bond ETFs can offer stability, especially in retirement. As interest rates remain elevated in 2025, short-duration bond ETFs have become more attractive. Yet, these returns are often lower than what’s required to beat inflation over decades.
Tailoring an ETF Strategy for Retirement
The most effective approach may be blending multiple ETFs to create a diversified, all-weather portfolio. For example:
- A global equity ETF for growth
- A dividend-focused ETF for income
- A bond ETF for stability
- Perhaps even a REIT ETF to add exposure to real estate
This balance can be reallocated gradually as you approach retirement, moving from riskier assets toward safer ones—a concept known as “glide path investing.”
A Sustainable Path, But Not a Magic Bullet
So, can you retire on ETFs alone? Technically, yes—if you start early, stay consistent, invest enough, and plan your withdrawals carefully. But relying on ETFs isn’t a shortcut. It requires discipline, regular contributions, and realistic expectations.
For many investors, especially beginners, ETFs provide an accessible entry point into the world of long-term wealth creation. They reduce the complexity of stock selection and the emotional rollercoaster of market timing. But even passive investing requires active planning.
Planning Beyond the Portfolio
Building a retirement around ETFs means thinking holistically. What are your lifestyle goals? What safety nets do you have—public pension, rental income, side business? Are you protected against unexpected events?
As with any financial decision, what matters most isn’t just what you invest in, but how you align it with your vision for the future.
Mapping Your Future with Purpose
If you’re new to investing or unsure how to begin, ETFs offer a compelling route. But don’t confuse simplicity with ease. To retire on ETFs, you need more than just market exposure—you need clarity, patience, and a smart savings plan.
Your future isn’t built in a day, but with each small, automated ETF contribution, you’re laying a brick on the road to financial freedom. So yes, you can retire on ETFs. But it starts with you.
