Superannuation is a popular and tax-effective way for working Aussies to build a long-term passive income for their future.
Of course, the catch is that you can't access your funds until you reach your preservation age, typically around 60. You'll also need to meet the conditions of release.
But by investing early, you can benefit from lower tax rates, compounding, and then eventually a retirement lifestyle boosted by a tax-free passive income.
The question is, how much do you need in your superannuation to receive the passive income you want when you've retired?
Let's break it down, using $4,000 per month as an example.
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How much do I need in my superannuation to get $4,000 of monthly passive income?
If you want to earn $4,000 in passive income every month from the money saved in your superannuation, that equates to $48,000 per year in dividend payments.
To work out the superannuation balance you'd need to get that, you'll need to divide your annual passive income by the dividend yield.
The catch is that the figure varies widely depending on the dividend yield of the ASX shares you have in your portfolio.
For example, a portfolio with a dividend yield of around 6% only needs to be around half the size of one with a dividend yield closer to 3% to generate the same level of dividend income.
Let's break it down further.
To earn $48,000 in annual passive income from a portfolio with a dividend yield around 3%, you'd need $1.6 million.
But to earn the same amount from a portfolio with a dividend yield closer to 4%, you'd need more like $1.2 million.
Then you'd need closer to $960,000 in a portfolio with a 5% dividend yield to earn the same amount.
If the yield is 6%, you'd need less, at around $800,000.
To get the same $48,000 of annual passive income from a portfolio with a 7% dividend yield, you'd need around $685,714.
And if the portfolio's dividend yield is closer to 8% or 9%, the portfolio size could be more $600,000 or $533,333, respectively.
And so on…
As you can see, as your dividend yield increases, the superannuation balance needed to earn the same level of passive income goes down.
What ASX shares can I get around these dividend yields?
There is a wide range of high-quality ASX dividend shares available for superannuation investments, with yields varying significantly.
But here are a few of my favourites to get you started.
Lower yielding ASX dividend-paying shares such as Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), and Washington H. Soul Pattinson and Co Ltd (ASX: SOL) are solid and reliable shares that offer a yield of around 2% to 3%.
For a mid-range yielding ASX dividend option, I'd look at defensive assets like Telstra Group Ltd (ASX: TLS) or Transurban Group (ASX: TCL), and blue-chip majors like BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), which pay a dividend of around 3% to 4%.
For a higher 5% to 6% dividend yield, I'd look at reliable payers like APA Group (ASX: APA), Metcash Ltd (ASX: MTS), or Origin Energy Ltd (ASX: ORG).
If you want to take on more risk and go for a much higher-yielding ASX stock, my picks would be something like IPH Ltd (ASX: IPH), the BetaShares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX), or the Metrics Income Opportunities Trust (ASX: MOT). These typically yield around 9% or more.
