If I were beginning to think about retirement but had little or no cash in the bank, I would turn to cheap ASX dividend shares to build passive income.
Particularly, as 2022 has been harsh for markets around the world. The S&P/ASX 200 Index (ASX: XJO) has fared better than most this year, falling 8% since the start of the year.
There's nearly always an upside to a market downturn – the disruption often sees quality shares trading at bargain prices.
That means now could be a prime time to put together a portfolio of ASX dividend shares to help me retire early.
Why I'd buy ASX dividend shares for retirement
Readers have likely heard it a million times, but I'll say it again: Passive income can be the key to a comfortable retirement.
Passive income is just that – income that comes about without much active effort. ASX dividend shares generally provide retirees with just that. That may be particularly important for those without a substantial savings account to draw from during retirement.
Dividend-paying companies offer those invested in their shares a portion of their income in the form of cash payouts. Such dividends can also come with franking credits, which can provide extra benefits at tax time.
ASX dividend shares can also provide capital growth in their own right. A company's share price generally grows alongside its business.
And, of course, a growing business often means growing profits, potentially leading to higher dividends.
It's also worth mentioning that ASX dividend shares can act as an inflation hedge, as their capital and dividends are capable of growing faster than inflation can erode the value of cash.
Buying cheap dividend-paying stocks
If I were 50 and looking to build a portfolio capable of allowing me to retire early, I would seek out quality ASX dividend shares trading for cheap prices.
And there's likely no shortage. The market's recent volatility has likely left many trading in the bargain bin.
Interestingly, an ASX share only needs to post an average annual gain of around 7.2% to double over the course of a decade.
I would also be tempted to reinvest any dividends as I prepare for retirement. That way I would make the most of the power of compounding.
I may also focus my attention on dividend-paying blue-chip shares. They can offer greater stability and, therefore, peace of mind, due to their generally strong track records and financial positions.
Finally, I would focus my attention on building a diverse portfolio of ASX dividend shares. That way my nest egg would be better protected from the risks involved with investing in a single basket.
