The ASX share market is a wonderful place to find investments that can unlock significant dividend income to help us retire, if we want to.
Australians have a variety of investment options for generating income in retirement. Bonds, term deposits, dividend shares and property are all options for passive income.
I think shares are best placed to provide good passive income because they can offer both a good dividend yield and rising payouts driven by profit growth.
Term deposits and bonds offer a fixed return, while the net rental yields from residential property are not particularly appealing to me.
So, let's explore using ASX shares to generate the six-figure annual sum.
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Retire on $100,000 of income at 60
Every household has different spending requirements and retirement goals, but $100,000 would be a pleasing level of investment income for most households.
If we invest well, someone could start their retirement with $100,000 of income, and those payouts could steadily grow over time.
Investors wanting $100,000 per year will need a sizeable portfolio, with the exact amount depending on the investment portfolio's dividend yield.
If an investor had assets that had an average dividend yield of 5%, they would need a portfolio size of $2 million. If someone wanted to retire on $100,000 per year and they had $1.5 million, we'd be talking about a dividend yield of approximately 6.66%.
Investors may be wondering what sorts of investments could deliver that sort of dividend yield.
Passive dividend income ideas
Many Aussie investors are probably aware of, and perhaps invested in, Vanguard's most popular option, which focuses on ASX shares: Vanguard Australian Shares Index ETF (ASX: VAS). This ASX ETF gives exposure to 300 of the largest businesses on the ASX.
For investors specifically targeting passive income, Vanguard Australian Shares High Yield ETF (ASX: VHY) focuses on larger high-yielding ASX shares.
Other popular options for passive dividend income include Australian Foundation Investment Co Ltd (ASX: AFI) and Argo Investments Ltd (ASX: ARG), two of the largest and oldest listed investment companies (LICs).
The benefit of the four options I mentioned above is that they offer fairly diversified portfolios, with significant exposure to stable, ASX blue-chip shares and sizeable dividend yields.
I think they're all solid options to consider for dividend yields of around 5%. I'd also highlight a couple of real estate investment trusts (REITs), such as Rural Funds Group (ASX: RFF) and Centuria Industrial REIT (ASX: CIP), that have reliable payout records, organic revenue growth, distribution yields of just over 5% and trade at appealing prices.
But, there are a few stocks that I believe could be compelling options to buy for a dividend yield of approximately 6.7%, while also providing payout consistency (and potentially growth).
Some of the ideas that come to mind include the LICs Future Generation Australia Ltd (ASX: FGX), Future Generation Global Ltd (ASX: FGG) and WCM Global Growth Ltd (ASX: WQG), as well as the REITs Charter Hall Long WALE REIT (ASX: CLW) and Dexus Industria REIT (ASX: DXI).
Some operating Australian companies, such as Telstra Group Ltd (ASX: TLS), are also options to consider for passive income.
