So you want to retire early? Then you'll need at least one source of passive income to do so. Here in Australia, we have a very generous retirement system. Held up by the Age Pension and boosted by our superannuation scheme, most Australians can look forward to a long and comfortable retirement.
But eligibility for the pension and access to superannuation is only allowed once someone reaches their 60s. So if you'd like an early retirement, you'll have to rely on alternative sources of passive income. And one of the best sources of passive income available to us is the share market.
I'm using ASX shares to build a passive income stream that will hopefully let me retire early one day. It's a relatively simple, if not easy, process. It starts with deploying extra cash into shares. Those shares pay dividends, often with franking credits as well, which I reinvest back into buying even more shares when they pay even more franked dividends.
One day, I will hopefully be able to 'flip the switch' and direct that steam of dividend income away from buying more shares towards paying my bills.
But that's easier said than done. Only the best shares pay consistent and rising dividends over time.
Sniffing these shares out is a difficult task. Many investors make the mistake of chasing the highest-yielding shares, only to see them cut their dividends down the road.
Image source: Getty Images
Here's how I'm using ASX dividend shares to build passive income
I've been investing for many years now, and have made plenty of mistakes along the way. These mistakes have taught me that there are only a few ASX shares that I can trust my future retirement with.
That's why I'm building my passive income retirement portfolio with only a handful of ASX dividend shares. My favourites include Washington H. Soul Pattinson and Co Ltd (ASX: SOL), VanEck Morningstar Wide Moat ETF (ASX: MOAT), MFF Capital Investments Ltd (ASX: MFF) and Wesfarmers Ltd (ASX: WES).
I supplement these high-quality shares with index funds like the Vanguard Australian Shares Index ETF (ASX: VAS) as well. I don't particularly like investing in the ASX banks or mining giants myself. But this exchange-traded fund (ETF) helps me to get exposure to them (and their dividends) anyway, without me having to worry about buying them at the right price.
So I consistently invest in these sorts of ASX shares month in, month out. I might not always be able to buy them at the price I would like.
But I still have full confidence that investing in these sorts of quality assets over time will help me to eventually build a formidable stream of passive income. And this is what I will use to retire early one day if all goes to plan.
