The superannuation system may be the best way for Australians to generate passive income because of how dividend payments are taxed at much lower rates compared to normal individual tax rates.
Passive income received in superannuation in the retirement portion of life could be tax-free. Isn't that appealing?
Readers may be wondering how much an investor would need to receive a large amount of dividends each year. Let's take a look at the required amount for that goal.
Image source: Getty Images
$9,000 of passive income each month from superannuation
Getting $9,000 per month would be $108,000 each year. That'd be a very satisfactory amount for most Australians and could fund a comfortable lifestyle.
How large the nest egg needs to be to receive $108,000 per year essentially boils down to what the portfolio yield is.
For example, if someone's portfolio had an average dividend yield of 5%, they'd need a $2.16 million portfolio.
But, if the average dividend yield was 7.5%, an investor would need a $1.44 million portfolio.
If the average dividend yield were 3%, then an investor would require a portfolio size of $3.6 million.
There are plenty of options when it comes to aiming for these sorts of yields. I'll point to a few ASX shares below. I have invested in a number of the names below to create a diversified, strong portfolio with a good yield and still have compelling growth prospects.
Which ASX dividend shares I'd buy
There isn't one right answer when it comes to investing for passive income in superannuation.
But it's true that a business with a lower dividend yield may be investing more of its earnings back into itself to drive more growth for shareholders.
Some of the impressive businesses with a lower dividend yield include Lovisa Holdings Ltd (ASX: LOV), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Wesfarmers Ltd (ASX: WES). I expect pleasing compounding of the dividend payout over the next three to five years.
Some of the compelling ASX dividend shares with a dividend yield of around 5% are names like exchange-traded fund (ETF) WCM Quality Global Growth Fund (ASX: WCMQ), listed investment company (LIC) Long Short Fund Ltd (ASX: LSF) and industrial real estate investment trust (REIT) Centuria Industrial REIT (ASX: CIP).
Turning to the higher-yield options I'd consider, names that spring to mind include WCM Global Growth Ltd (ASX: WQG), Future Generation Australia Ltd (ASX: FGX), Future Generation Global Ltd (ASX: FGG) and WAM Microcap Ltd (ASX: WMI).
