If you're like me, you probably wouldn't mind hanging up your hat and living the good life on passive income.
Now, there are various paths I can take to build a passive income stream, such as owning rental properties.
But I know enough about rental properties to realise that even if I hire a property manager, it will still entail a fair bit of work.
So, to quit work entirely and live off a second income, I'd turn my attention to ASX dividend shares.
We Australians are lucky that the ASX is home to a large number of high-quality dividend-paying stocks.
And unlike most international markets, like the United States, many ASX dividend shares pay full franking credits. That means I should be able to keep more of my dividend income when it's time to pay the ATO its tax dues.
Of course, the first thing I need to do is decide just how much passive income I need to quit work and live comfortably. My needs and wants won't align with everyone. But I reckon I could happily live off $80,000 a year in passive income.
We'll look at three S&P/ASX 200 Index (ASX: XJO) dividend stocks below that I'd invest in to build the base of that income portfolio. But bear in mind that a properly diversified portfolio will contain more like 10 stocks, ideally operating in different sectors and geographic locations.
Also, keep in mind that the dividend yields you generally see quoted are trailing yields. Future yields may be higher or lower depending on a range of company-specific and macroeconomic factors.
With that said, I think these three ASX 200 dividend stocks will continue to deliver market-beating passive income over the long run.
Three ASX 200 passive income stocks for an early retirement
The first ASX 200 dividend stock I'd buy with the aim of quitting work and living off passive income is ANZ Group Holdings Ltd (ASX: ANZ). Over the past 12 months, the big four Aussie bank has paid out $1.77 in partly franked dividends. At yesterday's closing price of $31.25, that equates to a trailing yield of 5.7%.
The second dividend share I'd buy is Fortescue Ltd (ASX: FMG). The ASX 200 miner paid (or shortly will have paid) a total of $1.97 in fully franked dividends over the last 12 months. At yesterday's closing price of $16.13, Fortescue shares trade on a trailing yield of 12.2%.
And the third company I'd invest in to quit work and live off the passive income is Ampol Ltd (ASX: ALD). The ASX 200 energy stock has declared $2.40 in fully franked dividends over the past 12 months. At yesterday's closing price of $28.78, that works out to a trailing yield of 8.3%.
To the maths!
So, if I were to buy an equal amount of these ASX 200 dividend shares, I'd earn an average yield of 8.7%, mostly franked.
To quit work and live off $80,000 a year in passive income, I'd need to invest $919,540 today.
Now, that's obviously a sizeable figure.
But that's okay.
I can also get there by investing smaller amounts each month and letting the power of compounding work for me over time.
And of course, atop those regular passive income payments, I hope to see the ASX dividend stocks in my portfolio post share price gains as well.
