Retiring? Here's how I'd aim to keep cash flowing in for life

The share market can help you retire very comfortably.

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Nobody wants to be short of funds when in retirement. The good news is that you don't have to be.

That's because by planning ahead, you can build an investment portfolio that provides you with a growing source of retirement income.

But how can you achieve this? Let's take a look.

Building lasting retirement income

The first step to take will largely depend on where you are in your career.

If you are at the start of it, then now is the time to start making modest contributions to your portfolio.

By making regular investments, you can benefit from the power of compounding.

For example, if you are 30, investing $500 into ASX shares each month would grow into a portfolio of almost $1.4 million by the time you turn 65 if you generate an average 9% per annum return.

At that point, you could switch your focus to retirement income by constructing a portfolio filled with high-quality ASX shares that pay dividends. If you can average a 4% dividend yield across your portfolio, you will be generating $56,000 in annual dividends.

But the even better news is that if you invest wisely, these dividends should continue to grow each year in retirement.

For instance, if your $1.4 million portfolio grows by 5% per annum (after dividend payments), then by the time you're 75 it would be worth $2.3 million. At that point, a 4% dividend yield would lead to annual dividends of $91,000.

What about if you're nearing retirement?

If you're 50 then you could still achieve the same results. You will just need to invest larger sums.

Assuming you have a $125,000 investment portfolio already, by making monthly contributions of $2,500, you would grow your portfolio to $1.4 million by the time you are 65, ceteris paribus.

After which, you can switch your focus to retirement income and sit back and watch the dividends come rolling in.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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