Why I'd buy high-yield ASX dividend shares for superannuation in retirement

High-yield ASX dividend shares can make a lot of sense in retirement.

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I think high-yield ASX dividend shares can be a very effective pick for superannuation in retirement because of cash flow requirements and potential taxation advantages.

Superannuation is usually one of the most valuable assets for a lot of Aussies. In retirement, it may be the main (or supplementary) source of income, depending on whether someone gets the age pension or if they have other non-superannuation assets to generate income.

What makes dividend income appealing in retirement?

What assets are good choices for superannuation in retirement? I think high-yield ASX dividend shares are effective. First, I'll point out that people need cash flow to pay for their life expenses.

It'd be a good idea to consult with a financial planner to understand the ins and outs of withdrawing money from superannuation. However, many people need to adhere to a minimum withdrawal percentage of their superannuation balance. A good dividend yield could help with that requirement.

The taxation in superannuation is also appealing, the retiree's taxation rate on investment earnings and withdrawals is designed to be lower than it otherwise would have been in someone's own personal name. It could be a 0% tax rate, depending on certain factors.

ASX dividend shares can pay a high yield. If someone has a high personal income and is in a high tax bracket, they would lose a fair chunk of the dividend (income) return to tax, depending on their marginal tax rate. Dividend returns from a retirement-phase superannuation account may see very little friction in getting into the hands of a retiree.

But, just because a high-yield ASX dividend share pays a pleasing amount of cash flow, it doesn't automatically make it a good investment.

Which high-yield ASX dividend shares I'd invest in for superannuation in retirement

I'd still look for investments that want to grow the payouts to investors, or seem they have a good chance of doing so. Some listed investment companies (LICs) may be appealing, but I'm going to talk about specific S&P/ASX 200 Index (ASX: XJO) shares.

For example, Telstra Group Ltd (ASX: TLS) shares currently have an annualised grossed-up dividend yield of 7%. The business has said it wants to grow the payout for shareholders. It's growing net profit, which gives it more funding to enable dividend hikes. The projections on Commsec suggest the business can grow its dividend in FY25 and FY26.

Medibank Private Ltd (ASX: MPL) shares are benefiting from the ongoing growth of policyholder numbers. Australia's ageing population and growing population could mean policyholder numbers keep growing for some time. Medibank has grown its annual dividend payout each year since 2021 and currently has a grossed-up dividend yield of 6%.

APA Group (ASX: APA) transports half of Australia's gas usage through its vast national pipelines. It also has a growing portfolio of renewable energy and electricity transmission assets. It has grown its annual payout every year for 20 years, though this isn't guaranteed to continue. It's expecting to pay an annual distribution yield of 6.5% based on the FY24 distribution guidance.

Motley Fool contributor Tristan Harrison 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 positions in and has recommended Apa Group and Telstra Group. 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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