How much should I invest in ASX shares to quit work and live only off dividend income

Replacing my salary with dividends doesn't have to be an expensive endeavour.

A woman looks quizzical while looking at a dollar sign in the air.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • By investing strategically in ASX shares, I think I could replace my salary with dividend income
  • But building a portfolio capable of paying out such an income will likely take some time
  • I reckon I could get there in a few short decades by investing consistently and compounding my returns

Building a portfolio of ASX shares capable of providing enough dividend income to allow an investor to quit their job might sound like a hard ask. But by investing strategically and consistently, I think I could end up raking in passive income.

Here's how I'd aim to build a passive income stream large enough to replace my salary by buying ASX dividend shares.

Breaking it down

Stripping it back to bare basics, investing in ASX shares is as simple as buying a slither of a business. If that business has more cash than it needs to grow, it hands the unused portion back to its owners – or investors, in this case – in the form of dividends.

Thus, it's possible to create a reliable income from dividends on the ASX. Though, I doubt building a portfolio large enough to provide me with a salary-sized revenue will be an overnight endeavour.

How much dividend income do I need to live?

Now, we get to the key question. How much a person needs to live will vary.

For instance, one wishing for a quiet countryside lifestyle will likely require less cash than another who hopes to boast an inner-city penthouse and regular international holidays.

Let's say $70,000 a year would be enough to get me by. If I were able to realise a relatively average 5% dividend yield, I would need a portfolio worth $1.4 million.

On the other hand, if I were able to sustain an above average, but not unheard of, 7% dividend yield, my ASX portfolio would need to be worth just $1 million to bring in $70,000 of dividend income annually.

So, without a million dollars or more in my piggy bank, how will I build such a portfolio? Well, it might not be the feat it appears.

Building my ASX dividend income portfolio

If a $1 million passive income portfolio was my goal, I would start by assessing how much I could afford to invest each month.

Let's say I were to set aside $700 a month. I might invest that in ASX shares capable of paying a 7% dividend yield on average, and reinvest all the payments I receive, thereby compounding my returns.

At that rate, it would take me around 33 years to build my targeted portfolio, assuming my shares don't realise any capital gains. Though, historically, the bourse has always moved higher.

Of course, no investment is guaranteed to provide returns, and past performance isn't an indicator of future performance.

But what if 33 years' time was a little too far away for my liking?

Well, if I had a chunk of cash to begin with, or could fork out more than $700 a month, I could grow my ASX dividend income portfolio faster.

For instance, if followed my initial plan, but began by investing a $100,000 lump sum, I could boast a million-dollar portfolio in just 25 years.

More on Dividend Investing

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Dividend Investing

Brokers name the ASX dividend shares to buy in June

Let's see what they are saying about these shares.

Read more »

Married elderly man and woman in love spending time together on bench on a phone, symbolising retirement.
Dividend Investing

Why I think these 2 ASX dividend stocks are top buys for retirees

These stocks offer investors a pleasing level of resilience and dividends.

Read more »

Man pointing an upward line on a bar graph symbolising a rising share price.
Dividend Investing

3 growing ASX dividend stocks to buy now

Analysts are expecting these stock to paying growing dividends.

Read more »

Man holding out $50 and $100 notes in his hands, symbolising ex dividend.
Dividend Investing

Where I'd invest $5,000 into ASX dividend shares right now

These two stocks look irresistible to me.

Read more »

Smiling business woman calculates tax at desk in office.
Dividend Investing

Turn tax return into passive income with these ASX dividend shares

These options can bring solid returns through passive income. 

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Dividend Investing

Forget term deposits, these ASX dividend shares offer ~5% to 11% yields

Analysts think these shares could be better than term deposits. Let's find out what yields they offer.

Read more »

Tax time written on wooden blocks next to a calculator and Australian dollar notes.
Tax

Tax time: Use this hack to keep the Australian Tax Office off your back

Buying dividend shares can save you paying taxes...

Read more »

Man smiling at a laptop because of a rising share price.
Dividend Investing

2 exciting high-yield ASX dividend shares I'd buy in June

These stocks have a lot to offer investors focused on income.

Read more »