Why ASX dividend share income could be so important for 75% of retirees

Most retirees have spent a lifetime working and building up a nest egg. But life happens, and some people will find that they haven’t built up enough income for a comfortable retirement.

I think that ASX dividend shares could be the answer.

The dream of living out the golden years with ample money is one that plenty of people aspire to.

A recent article on CNBC suggested that to “maintain your standard of living in retirement, the rule of thumb is you need to be able to replace at least 70% of the income you had while you were working.”

However, of a survey of 1,566 participants in the United States by Goldman Sachs Asset Management, just 25% of retirees generated that 70% level of former income. The research showed that 51% of retirees made less than 50% of their pre-retirement income.

What can Aussies do about this?

While Australia isn’t the same as the US, there are a few things to consider for how much is needed to retire in Australia.

For example, the age that people can access a pension and their superannuation can play a part. For those born on or after 1 January 1957, the retirement age (being the age pension entitlement age) will move to 67 years as of 1 July 2023.

The Motley Fool’s article on retirement planning outlines an example of how long a nest egg may need to last:

So, theoretically, an Australian woman who retires at 67 and lives until the average age of 85 will need her retirement savings, investments, and superannuation to fund her living expenses for 18 years.

Households will need to determine how much they want/need to spend in retirement as well.

For a comfortable retirement, the Association of Superannuation Funds of Australia’s Retirement Standard suggests a couple that owns their home will need an income of $67,000, while a single person will need an annual income of more than $47,000, according to Motley Fool research.

I think that ASX dividend shares can play a very helpful role in boosting retirement income and supplementing other forms of income, such as a pension or a part-time job.

Strong yields from ASX dividend shares

The US market isn’t particularly known for paying good dividends. As an example, the Vanguard US Total Market Shares Index ETF (ASX: VTS) has a dividend yield of 1.7%, according to Vanguard.

Meanwhile, franking credits give Aussie investors the ability to significantly boost their after-tax dividend income.

Some businesses are building a record of consecutive years of dividend growth, such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Sonic Healthcare Ltd (ASX: SHL), APA Group (ASX: APA) and Brickworks Limited (ASX: BKW).

Some of these businesses are seeing rising share prices.

There are also some names that have higher dividend yields and, in most years, tend to increase their payouts. These include Wesfarmers Ltd (ASX: WES), Charter Hall Long WALE REIT (ASX: CLW) and Rural Funds Group (ASX: RFF)

While ASX dividend shares aren’t a magic cure, they can allow retirees to generate more investment income from their nest egg than many other types of assets.

The post Why ASX dividend share income could be so important for 75% of retirees appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Brickworks, Rural Funds Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goldman Sachs Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Apa Group, Brickworks, Rural Funds Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Sonic Healthcare. 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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