How I'd generate $80,000 of retirement income from ASX shares
Retirement planning is one of the most critical financial goals for any investor, and the earlier you start, the better your chances of achieving financial independence.
I think the key to building a sustainable retirement income involves investing in high-quality ASX shares, leveraging the power of compounding, and being patient.
By doing this, I believe it could be possible to generate $80,000 in annual retirement income.
Generating $80,000 in annual retirement income
To generate $80,000 a year in retirement income, I would need to grow my portfolio significantly.
For example, if I could average a 6% dividend yield across my portfolio, I would still require a portfolio with a market value of $1.35 million to pull in my target income.
Achieving this requires careful planning and disciplined investing over a long period. Here's how I would work towards this goal:
- Invest monthly: Consistent monthly contributions are essential to growing my portfolio. Let's assume an initial investment of $10,000 and a monthly contribution of $1,500. With an average annual return of 10%, which is in line with the long term market average, my portfolio could grow to $1.35 million in around 21 years.
- Quality not quantity: To maximise returns, I would build a portfolio filled to the brim with high quality ASX shares that have strong fundamentals, sustainable competitive advantages, and positive long-term growth outlooks. Companies like CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), and ResMed Inc. (ASX: RMD) immediately spring to mind. I would also look at investing outside Australia through ETFs like Betashares Nasdaq 100 ETF (ASX: NDQ). It is home to 100 of the best companies that money can buy.
Transitioning to an income-focused portfolio
Once my portfolio reaches the $1.35 million milestone after a couple of decades (hopefully sooner), I would transition it to prioritise income generation over growth. Here's how:
- High yields: I would look for high-yielding dividend shares (and ETFs) which also have strong business models and sustainable competitive advantages. A company like IPH Ltd (ASX: IPH) would be a good example today. It has an estimated fully franked 7% dividend yield and a very strong position in a defensive intellectual property services industry.
- Mitigate risk: As with any investing, diversification remains very important. I would ensure my income-focused portfolio is well-diversified to reduce the risk of overexposure to any single sector. After all, if there's a downturn in one sector that impacts dividend payouts, other sides of my portfolio should help offset this.
Final word
Building a retirement portfolio takes time, patience, and a commitment to consistent investing. By starting early, reinvesting dividends, and focusing on quality investments, I can harness the power of compounding to reach my financial goals. Once the target portfolio value is achieved, reshaping it to generate reliable income is the key to enjoying a stress-free retirement.
The post How I'd generate $80,000 of retirement income from ASX shares appeared first on The Motley Fool Australia.
Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF, CSL, and ResMed. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF, CSL, Goodman Group, and ResMed. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF and ResMed. The Motley Fool Australia has recommended CSL, Goodman Group, and IPH Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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