Your superannuation shouldn't sit quietly in the background.
If you can actively and wisely invest it, it can become an excellent tool to generate an easy passive income for retirement.
As an added bonus, not only can it help you build wealth for later on in life, it also comes with the added benefit 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 $60,000 per year passive income as an example.
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How much do I need in my superannuation to earn $60,000 per year in passive income?
To calculate the superannuation you'll need, simply divide your annual passive income by the dividend yield of your portfolio.
Of course, the tricky part is that the answer varies significantly depending on what dividend yield of your portfolio actually is.
For example, a portfolio with a dividend yield of around 6% only needs to be half the size of one with a dividend yield of around 3% to generate the same level of passive income.
So, if your overall portfolio has a dividend yield of around 3%, you'll need a balance of around $2 million to earn $60,000 per year in passive income.
Of course, a $2 million superannuation balance isn't achievable for many Australians. But the good news is that, as your dividend yield increases, the superannuation balance required to earn the same passive income goes down.
That means, if the yield of your portfolio is around 4%, for example, your balance would need to be closer to $1.5 million to earn the same dividend income.
Raise the dividend yield of your portfolio to 5% and you'd be looking at a balance of closer to $1.2 million to earn the same amount.
Increase that to a 6% or even 8% dividend yield, and you'd need around $1 million or $750,000, respectively. You'd still earn $60,000 per year in passive income from these portfolio sizes.
What ASX shares can I buy around these dividend yields?
There are a huge range of ASX dividend shares available for your superannuation investment. Here are some of my favourites.
Lower-yielding ASX dividend-paying shares such as Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), AMP Ltd (ASX: AMP) and Washington H. Soul Pattinson and Co Ltd (ASX: SOL) are solid and reliable stocks 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). Santos Ltd (ASX: STO) is a good option if you want oil and gas exposure. Meanwhile, Coles Group Ltd (ASX: COL) and blue-chip majors like Rio Tinto Ltd (ASX: RIO), BHP Group Ltd (ASX: BHP) and National Australia Bank Ltd (ASX: NAB) pay a decent dividend of around 3% to 5%.
For a higher 5% to 6% dividend yield, I'd look at reliable payers like APA Group (ASX: APA) or AGL Energy Ltd (ASX: AGL).
Dexus Industria REIT (ASX: DXI) and Charter Hall Long WALE REIT (ASX: CLW) yield around the 7% mark.
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), Centuria Office REIT (ASX: COF), or the BetaShares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX). These typically yield anywhere between 9% and 12%.
