The best passive income streams to help fund your retirement

Setting up a source of second income could do wonders for your retirement.

Woman with a floatable flamingo at a beach, symbolising passive income.

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It goes without saying that almost all of us would relish the opportunity of establishing a stream of passive income (or two) that could help supplement our day jobs, and, when the time comes, fund our retirement.

But doing so is definitely easier said than done. Many sources of passive income can be risky, or require an inordinate amount of upfront effort.

So unless you're about to finish the next one-hit wonder, here are some streams of passive income that anyone can set up for a comfortable retirement today.

Some top ideas for a passive income stream

Find a high-interest savings account

This one might seem simple, but you'd be surprised how many Australians don't have their savings sitting in an account or term deposit paying a competitive interest rate. This is one of the easiest fixes anyone can do in order to set up a stream of passive income.

Right now, interest rates are at a decade-high. Whilst this might be painful for mortgage holders, it's a blessing for those with a pile of cash at the bank. It's not uncommon today to see savings accounts and term deposits offering interest rates of 5% or even higher.

That means that you can bank as much as $1,000 per annum in work-free income for every $20,000 you have invested in a high-interest savings account or term deposit.

This requires almost no work on your part, just 10 minutes of research and paperwork. If you have a significant amount of cash in the bank sitting in a chequing or 'everyday' account paying little or no interest, it's easy money you're just throwing away.

Make your hobby profitable

Most of us have hobbies – activities that we enjoy outside of work for our own leisure. Most of us are happy to pursue these hobbies as passion projects. But today's modern world also gives us a chance to turn these hobbies into a profitable side hustle.

Like playing video games? Perhaps you should consider streaming your playthroughs. Enjoy bushwalks, sewing, cooking, fishing, camping, metal work or carpentry? You can set up a blog or vlog and document your latest finds, travels or projects.

The internet is awash with these sorts of endeavours. But with a little dedication, you might find yourself at the helm of a new source of passive income. Who wouldn't like to spend their retirement doing what they love, and getting paid for it?

ASX dividend shares for passive income

But of course, we have to talk about ASX dividend shares. After all, they are quite possibly the best source of passive income for all Australians.

Dividend shares can give us everything we need in a source of passive income: No active labour required, inflation-resistance, and income that should rise over time. Like any ASX share investment, one needs to be judicious in selecting which ASX dividend shares will make the cut for a passive income portfolio.

But I think taking the easy way and choosing an exchange-traded fund (ETF) like the Vanguard Australian Shares High Yield ETF (ASX: VHY) is a great option for most Australians. Dividend payments normally get doled out every six months on the ASX, and often come with franking credits attached too. These can help us boost our passive income even further.

Investing in ASX divided shares for passive income is something we can all do today. The only downside with this stream is that it does require a substantial investment of cash to get the ball rolling.

Motley Fool contributor Sebastian Bowen 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 recommended Vanguard Australian Shares High Yield ETF. 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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