Investing your superannuation is a smart way to generate a reliable passive income for retirement.
Not only can it help you build wealth for later on in life, it also comes with the added bonus of low tax rates and long-term compounding.
But how much do you actually need in your super to be able to earn the passive income you want in retirement?
Let's break it down, using a $50,000 per year passive income as an example.
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How much do I need in my superannuation to earn $50,000 per year in passive income?
Working out the superannuation you'll need to earn that level of passive income is more straightforward than you'd think.
Simply divide your annual passive income by the dividend yield of your portfolio.
Of course, the hard part is that the answer varies significantly depending on the dividend yield of your portfolio.
For example, a portfolio with a dividend yield of around 5% only needs to be half the size of one with a dividend yield of around 2.5% to generate the same level of passive income.
Breaking it down further
If your overall portfolio has a dividend yield of around 3%, you'll need a balance of around $1.66 million to earn $50,000 per year in passive income.
Then, as your portfolio's dividend yield increases, the superannuation balance required to earn the same passive income decreases. Say the yield of your portfolio is around 4%, for example, your balance would need to be closer to $1.25 million to earn the same dividend income.
For a 5% yielding portfolio, you'd need a balance of closer to $1 million to earn the same amount.
Increase that to a 6% or 7% dividend yield, and you're looking at closer to $833,000 or $714,000. You'd still earn $50,000 per year in passive income from these portfolio sizes.
ASX shares around these dividend yields
There is a huge range of options, but here are a few of my favourite ASX dividend shares to get you started.
At a 2%-3% dividend yield, I'd look at well-known companies like Coles Group Ltd (ASX: COL) or Commonwealth Bank of Australia (ASX: CBA).
For options yielding closer to 4%, my choices would be banking giants such as National Australia Bank Ltd (ASX: NAB) or ANZ Group Holdings Ltd (ASX: ANZ).
If you want a slightly higher yield around 5% or 6%, I'd invest in something like Santos Ltd (ASX: STO) or Woodside Energy Group Ltd (ASX: WDS).
Then your high-yield players could include GQG Partners Inc (ASX: GQG) or IPH Ltd (ASX: IPH). These yield 7% or more.
