Earning a passive income off your superannuation balance is easier than you'd think.
You just need to know how to invest it and understand what level of passive income to expect.
The benefit of investing your superannuation for a passive income in retirement is that it comes with the added benefit of low tax rates and long-term compounding.
The only downside is that you can't access it until you reach retirement age.
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 monthly $7,000 passive income as a guide.
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How much do I need in my superannuation to get a passive income of $7,000 every month?
There's a simple calculation you can use. First, you'd need to work out what your monthly passive income totals over the year, then divide that annual passive income figure by the dividend yield of your portfolio.
For example, $7,000 x 12 = $84,000. Divide that by a 3% yielding portfolio, and you'll need a $2.8 million portfolio in order to earn $84,000 per year (or $7,000 per month).
Of course, a $2.8 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 decreases.
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.
How much do I need in my superannuation if my portfolio yields 4%?
To earn $84,000 per year off a 4% yielding portfolio, you'd need to have a balance of around $2.1 million.
ASX shares that could fit the bill include Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), or Transurban Group (ASX: TCL). These all yield 4% or a little more.
How much do I need in my superannuation if my portfolio yields 5%?
To earn the same $84,000 per year off a 5% yielding portfolio, you'd need to have a superannuation balance closer to $1.68 million.
Shares that yield 5% or just over could include Woodside Energy Group Ltd (ASX: WDS), Universal Store Holdings Ltd (ASX: UNI), and AGL Energy Ltd (ASX: AGL).
What about for a 6% yielding portfolio?
A superannuation balance of around $1.4 million can earn the same passive income on a 6% yielding portfolio.
Harvey Norman Holdings Ltd (ASX: HVN), Fortescue Ltd (ASX: FMG), and Dexus Industria REIT (ASX: DXI) are good examples of ASX shares that yield around 6%.
And for a portfolio that yields 7% or 8%, what do I need then?
Higher-yielding shares mean investors can earn the same passive income off a much smaller superannuation balance, but they do come with added risk.
A $1.2 million or $1.05 million portfolio yielding 7% or 8%, respectively, could earn $84,000 in passive income.
Higher-yielding options include ASX shares such as the BetaShares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX), GQG Partners Inc (ASX: GQG), or Centuria Office REIT (ASX: COF).
