How much do I need to retire on $85,000 a year at 50?

I think one of the best things about the ASX share market is that we can buy pieces of businesses that help grow our wealth over time, so we can eventually retire.

Compounding is a very powerful tool that can help grow a dollar into significantly more over the years.

We don’t need to run these businesses ourselves. That’s up to management and all other staff at those companies.

Whether that’s some of the world’s biggest companies or some of the up-and-coming ASX shares, we can invest in ideas that can grow over time.

By regularly investing, spending less than we earn, and possibly using superannuation, an Aussie can build a very rewarding level of annual passive income.

Let’s get into what it would take if someone wants to reach $85,000 of investment income each year by 50.

Compounding and building wealth

Compounding helps accelerate our net worth because we don’t need to add as much money to reach a financial goal.

For example, if someone invested $500 per month and it returned 10% per year, it would be worth $1.09 million after 31 years. About $905,000 of that total would come from returns, and only $186,000 would come from the actual deposits.

But I’m sure readers wanting to retire at 50 will want to reach their goal faster than 31 years.

So, let’s assume share market investments continue to return an average of around 10% and run through a few scenarios.

First, let’s double the monthly investment to $1,000 and see what happens then.

By investing $1,000 per month, a 25-year-old investor could reach $1.18 million after 25 years.

If someone aged 30 invested $2,000 per month, they could reach a portfolio value of $1.375 million.

Maybe someone is aged 35 and they have just 15 years to reach 50. Let’s imagine that person saves really hard and invests $3,500 per month. That could reach $1.33 million in that time.

Everyone has a different financial position, so I don’t know how much each household can save, but the above shows how people can regularly put money toward their net worth and eventually retire early.  

Unlocking $85,000 a year of annual passive income

Getting $85,000 each year would be a very good amount to retire on.

However, it would require investors from the above examples to target solid grossed-up dividend yields which typically include franking credits.

For example, accessing $85,000 on a $1.18 million portfolio means finding a 7.2% dividend yield. The sorts of businesses I’d target for that yield include Future Generation Australia Ltd (ASX: FGX), Future Generation Global Ltd (ASX: FGG), Charter Hall Long WALE REIT (ASX: CLW), Dexus Industria REIT (ASX: DXI) and WCM Global Growth Ltd (ASX: WQG).

The other end of my target was generating $85,000 from a $1.375 million portfolio. This works out to be a dividend yield of 6.2%. With that target in mind, I’d look at stocks like MFF Capital Investments Ltd (ASX: MFF), Centuria Industrial REIT (ASX: CIP), and
PM Capital Global Opportunities Fund Ltd (ASX: PGF).

By mixing a portfolio of good local shares and international exposure, retirees can build a pleasing stream of passive income, such as $85,000 by age 50.

The post How much do I need to retire on $85,000 a year at 50? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• These 2 ASX shares make up around 40% of my portfolio
• Why this ASX dividend share is a retiree’s dream for 2027
• MFF Capital vs PM Capital Global Opportunities: Which LIC is the better investment today?
• $3,000 buys 1,463 shares in an impressively reliable ASX dividend stock

Motley Fool contributor Tristan Harrison has positions in Future Generation Australia, Future Generation Global, Mff Capital Investments, Rural Funds Group, and Wcm Global Growth. 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 Mff Capital Investments and Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.