ETFs for Retirement: A Guide for Retirees

See etf.com’s guide on investing in ETFs during retirement.

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Research Lead
Reviewed by: etf.com Staff
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Edited by: Kent Thune


Investing in retirement often requires a balance of strategies, including income for the short term and growth for the long term. The right types of ETFs built into a diversified portfolio can accomplish both strategies. 

Learn about the best types of ETFs for retirement and the advantages they provide. 

What Are ETFs? 

ETFs are exchange-traded funds that hold other investment assets, such as stocks or bonds. Most ETFs passively track the performance of a benchmark index, such as the S&P 500. Put simply, an ETF is a hybrid of a stock and a mutual fund. Like stocks, ETFs trade intra-day on an exchange, and like mutual funds, ETFs are pooled securities. 

Are ETFs a Good Investment for Retirees? The Pros and Cons 

The key benefits of ETFs, such as simplicity, diversification, low expenses and tax efficiency, can make ETFs a sound investment for retirees. Short-term income generation and long-term growth are other potential benefits for retired investors. As with any other investment decision, investors should consider both the pros and cons of investing in ETFs for retirement before buying them. 

The Pros of Investing in ETFs for Retirement 

The pros of investing in ETFs for retirement include: 

  • Income generation: One of the primary purposes of investments in retirement is to produce supplemental income. Like stocks, stock ETFs pay dividends, and like bonds, bond ETFs pay interest to shareholders.
  • Long-term growth potential: A significant risk for retirees is outliving their investments. Since many retirees live for 20 years or more after retirement, growth ETFs can be an important part of long-term investing. For periods of 10 years or longer, ETFs that track the performance of a broad market index, such as the S&P 500, have outperformed most actively managed portfolios that invest similarly. 
  • Simplicity: It's generally easier and potentially more beneficial to build an ETF portfolio than it is to build a portfolio of individual stocks and bonds. Retirees can accomplish their investment goals with a relatively small set of ETFs, whether it’s diversification of assets, income, growth or a combination of objectives.  
  • Diversification: An ETF can provide exposure to hundreds of stocks or other assets in one packaged security. Comparing ETFs vs stocks, an ETF that tracks the performance of an index of stocks will generally have less-pronounced price movements up and down. Thus, ETFs generally provide more stable returns than stocks. 
  • Low expenses: ETFs generally have much lower expense ratios than mutual funds, and lower expenses generally translate to higher returns in the long run. Low fees ensure that more dividends and interest flow through to retirement accounts, which is important when living on a fixed income. 
  • Tax efficiency: ETFs can manage investment inflows and outflows by creating or redeeming “creation units,” which increases tax efficiency. Additionally, ETFs generally have low turnover, which means minimal buying and selling of securities, minimizing capital gains taxes for retired investors with taxable accounts. Some ETFs invest in securities, such as municipal bonds, that are tax-free at the federal level. 

The Cons of Investing in ETFs for Retirement

  • Risk: ETFs are not risk-free investments, and there are times when even a diversified portfolio can produce negative returns, which was the case for 2022 and early in 2023, when most stock and bond ETFs saw declines due to inflation and rising interest rates. However, several types of ETFs, such as floating-rate bond ETFs and covered-call ETFs performed well while producing income for investors in that time period.
  • Lack of control: With individual securities, investors can choose the stocks and bonds to hold in a portfolio, whereas ETF investors are not able to select the stocks or bonds held in an ETF. 

What Are the Best Types of ETFs for Retirement? 

There are multiple types of ETFs for retirement, but the best investments to buy for any portfolio are those that are suitable for the individual investor’s unique goals and risk tolerance. That said, retirees benefit from dividend ETFs and fixed-income ETFs, as well as ETFs that focus on a specific sector, such as real estate or utilities. 

Types of ETFs for retirement include: 

  • Dividend ETFs: These ETFs are income-based funds that typically invest in stocks of companies that pay high or stable and growing dividends. ETF dividends may be paid quarterly, or at some other frequency, depending on the ETF.
  • Fixed Income ETFs: Also known as bond ETFs, this type of ETF typically tracks an index of bonds, such as the Lehman Brothers US Aggregate Bond Index, or it may be actively managed. Like bonds, fixed income ETFs pay interest to shareholders. 
  • Sector ETFs: These ETFs may track the index of a market sector, such as technology or health care. Typical sectors that are sought for their income-producing potential include real estate, utilities, energy and financials. S&P 500 ETFs: Often used as a core holding in a portfolio, these ETFs seek to track the performance of the S&P 500 index, which includes 500 of the largest U.S. stocks, as measured by market capitalization. This makes S&P 500 index funds work well as a diversification tool. 
  • Total Market ETFs: track the performance of a broad market index capturing large segments of the stock market or bond market. For example, a total stock market index ETF may track an index, such as the Wilshire 5000, which consists of approximately 5,000 U.S. stocks in a range of market caps. There are also total bond market ETFs and total international stock market ETFs. 

Bottom Line on ETFs for Retirement 

ETF benefits, including simplicity, low expenses and tax efficiency, make exchange-traded funds a worthwhile investment for retirement. Popular types of ETFs for retirement include dividend ETFs, fixed-income ETFs and real estate ETFs. Ultimately, choosing the right kind of investments for any portfolio depends on the investor’s unique financial goals and risk tolerance. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.