Having $750,000 invested in exchange-traded funds (ETFs) would put you in a strong financial position heading into retirement.
But would it be enough to stop working and enjoy a comfortable lifestyle?
I think it could be, particularly with the right investment strategy.
Let's look at what the numbers suggest.
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How much would you need?
According to the Association of Superannuation Funds of Australia (ASFA), a single person who owns their home outright needs approximately $56,166 a year for a comfortable retirement.
That includes everyday expenses alongside holidays, private health insurance, leisure activities, and other things that make retirement enjoyable.
ASFA also estimates that a single homeowner needs around $630,000 in superannuation at age 67 to fund this lifestyle, assuming some assistance from the Age Pension.
So, with $750,000 available, our hypothetical retiree is starting from a promising position.
But the next question is how to turn that money into an income that can last for decades.
How I'd approach an ETF portfolio
One of the things I like about ETFs is that they make it relatively straightforward to spread investments across different markets.
For example, the Vanguard Australian Shares Index ETF (ASX: VAS) provides exposure to hundreds of Australian shares, many of which pay regular dividends.
Meanwhile, the Vanguard MSCI Index International Shares ETF (ASX: VGS) offers access to major businesses around the world.
I think combining Australian and international shares could provide a reasonable balance between income and long-term capital growth.
I would also consider including some defensive investments. The Vanguard Australian Fixed Interest Index ETF (ASX: VAF), for example, provides exposure to a diversified portfolio of bonds.
Having some money in these less volatile investments could help reduce the need to sell shares during a market downturn.
For me, that would be important in retirement, when regular withdrawals become part of everyday life.
Could the income cover expenses?
Let's imagine our $750,000 portfolio generates an average annual dividend yield of 4%. That would provide approximately $30,000 a year in investment income.
It is important to remember that this is an illustrative assumption. Actual dividends would depend on the ETFs selected and could vary considerably.
Nevertheless, it gives us a starting point.
Against ASFA's comfortable retirement estimate of $56,166, there would be an annual shortfall of approximately $26,166. That means our retiree would need additional income or to sell some investments to cover their spending.
But I don't see this as a problem. After all, our ETF portfolio would ideally be generating capital growth alongside its distributions.
Let's imagine the portfolio achieves an average annual total return of 7.5%, comprising 4% in dividends and 3.5% in capital growth.
On a $750,000 portfolio, that additional 3.5% would represent approximately $26,250 in capital appreciation.
That is almost exactly what our retiree needs to make up the shortfall.
In a year when those returns are achieved, selling some ETF units could cover the remaining living expenses while leaving the overall portfolio value broadly unchanged.
Of course, returns won't arrive so neatly every year. Markets can fall, dividends can be reduced, and some years will require larger withdrawals from capital.
Inflation will also increase living costs over time, so maintaining the portfolio's value in dollar terms would not fully protect its purchasing power.
But I think a diversified portfolio targeting a reasonable mix of income and growth could be a workable retirement strategy, particularly if Age Pension payments eventually provide additional support.
Foolish takeaway
For a single person who owns their home outright, I think $750,000 in ASX ETFs could be enough to fund a comfortable retirement.
An average annual return of 7.5% would theoretically cover today's estimated living expenses without steadily depleting the original investment.
That return is not guaranteed, and I would want some flexibility to handle weaker years. But I think the numbers show that a comfortable retirement with $750,000 is certainly achievable.
