How many Australians receive dividend income in retirement?

A new report provides insights on the most common sources of income for Australia's 4.2 million retirees.

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More than two million Australians are receiving dividend income in retirement, new data suggests.

This dividend income comes from either their superannuation or directly held ASX shares or international equities like US shares.

The Australian Bureau of Statistics (ABS) recently published its Retirement and Retirement Intentions report, which documents all of the income sources for Australia's 4.2 million retirees in FY23.

Let's take a look at the numbers.

Superannuation is the second biggest source of income for retirees overall, behind the age pension.

The ABS report found that superannuation was a source of income for 1,655,500 retirees or 39.6% of the retired population.

It was the main source of income for a large percentage of this group at 1,119,400 retirees, or 26.8%.

The ABS data does not delineate how many retirees' superannuation funds are invested in dividend shares. But it's a fair bet many of those super funds have at least some monies allocated to shares.

Apart from the 100% cash option, the most conservative superannuation strategy offered by most funds still allocates about 30% of monies to shares and property, according to moneysmart.gov.au.

ASX dividend shares, which are typically large, well-established companies like the major banks, are popular investments for retirees not only because they deliver reliable passive income but also because of our unique franking credits regime in Australia.

Franking credits can be used by any investor — retired or not — to offset their tax liabilities. But if the value of your franking credits exceeds your tax liability, you can receive a cash refund.

This is a common scenario for retirees because the taxable component of their incomes is typically low.

This is because income streams from superannuation are usually tax-free, and as the ABS data shows, a large portion of retirees rely on superannuation for at least part of their retirement income.

Thus, the tax retirees have to pay on their other investment income, such as property rent, may be less than the value of their franking credits. So, they get a refund.

The ABS data also showed that many retirees receive dividend income from directly owned shares investments outside superannuation.

The ABS groups this dividend income together with interest from cash savings.

It found that dividends or interest were a source of income for 347,300 people or 8.3% of retirees.

Dividends or interest were the main source of income for 123,500 retirees, or 3% of retirees.

According to Super Guide, the most popular ASX stock held by Australia's 616,400 self-managed superannuation funds (SMSFs) is BHP Group Ltd (ASX: BHP), which is a renowned dividend payer. Other popular holdings include National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

The ABS data also looked at how many retirees receive rental income from an investment property.

Rent was a source of income for 189,900 retirees or 4.4% of the retired community.

It was the main source of income for 100,800 retirees or 2.4%.

Motley Fool contributor Bronwyn Allen has positions in BHP Group. 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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