Australians can use the power of the ASX share market to help them retire wealthy at age 57, or even earlier. It’s possible to create a lot of passive income from investments.
Superannuation is a great tool to save towards retirement. But what if someone wants to retire earlier than that? I think it’d be a good idea to invest outside of superannuation too.
Taxation can be an important factor, but every household has a different income and different tax situation, so I won’t talk about that side of things. I’m just going to look at how Australian investors can unlock gross passive income of $90,000 a year and retire by 57.
Regularly save and invest
Having cash to invest doesn’t just appear out of nowhere. Australians need to set some money aside, assuming their budget has the room to do so after paying for the essentials.
Essentially, we need to spend less than we earn and invest the difference. Of course, it’s a good idea to make sure we enjoy life during that period of wealth accumulation – life is not just about the money.
Every household has different finances, so it’s up to each Australian adult to figure out what they can save.
Investing those savings makes a big difference to how much the wealth grows to. For example, putting $1,000 per month under the mattress will turn into $120,000 after ten years.
If someone else invested $1,000 per month in the share market and it returned an average of 10% per year, it’d be worth $191,249 after a decade. After two decades of doing that, the balance would become $687,300. After three decades, it becomes an incredible $1.97 million.
Therefore, someone who’s 27 could start today and potentially have $1.97 million by 57 and retire.
Figure out what sort of investments to make
There are a number of ways for Australians and invest to build their wealth.
One of the simplest ways to build wealth is to invest in exchange-traded funds (ETFs) that give investors exposure to quality businesses from around the world, which I believe have a higher chance of delivering solid compounding earnings growth.
Some of my top choices for that investment exposure include Vanguard MSCI Index International Shares ETF (ASX: VGS), VanEck MSCI International Quality ETF (ASX: QUAL), Betashares Global Quality Leaders ETF (ASX: QLTY) and Global X S&P World EX Australia Garp ETF (ASX: GARP).
There are certain Australian companies that I also think could be excellent contenders to grow wealth over the long-term including Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES) and L1 Global Long Short Fund Ltd (ASX: GLS).
The yield influences the portfolio size needed
The portfolio balance required to generate $90,000 per year depends on the dividend yield of the portfolio.
For example, if someone had a $2 million portfolio, it’d require a dividend yield of 4.5% to make $90,000 of annual passive income.
If the dividend yield was 3%, the portfolio would need to be $3 million in size.
With a dividend yield of 6%, the Aussie investor would need $1.5 million.
By choosing the right investments and regularly saving, an average Aussie can build a good amount of wealth and retire.
The post How much do I need to retire on $90,000 a year at 57? appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has positions in L1 Global Long Short Fund Ltd, VanEck Msci International Quality ETF, 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 Washington H. Soul Pattinson and Company Limited and Wesfarmers. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.