Your superannuation is your nest egg for retirement. Not only does it help you build wealth for your later years in life, once you stop working, it can also become a great source of passive income.
By investing your superannuation wisely, you might be able to generate a regular cash flow high enough to live the retirement of your dreams.
The question is: How much do you actually need in your super to be able to get the passive income you want when you transition to your pension phase?
Let's investigate, using an annual $100,000 passive income as an example.
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How much do I need in my superannuation to get a passive income of $100,000 every year?
To calculate how much you need in your superannuation, you need to divide your annual passive income by the dividend yield of your overall portfolio.
Obviously, the catch is that the answer varies depending on what your dividend yield is.
It means 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.
Say your overall portfolio has a dividend yield of around 3%, you'll need a balance of around $3.3 million to earn $100,000 per year in passive income.
Of course, $3.3 million is a huge figure, and this level of superannuation isn't achievable for everyone.
But the good news is, as your portfolio's dividend yield increases, the superannuation balance required to earn the same passive income decreases.
So if the yield of your portfolio is around 4%, for example, your balance would need to be closer to $2.5 million to earn the same dividend income.
For a 5% yielding portfolio, you'd need a balance of closer to $2 million to earn the same amount.
Increase that to a 6%, 7%, or 8% dividend yield, and you're looking at closer to $1.6 million, $1.4 million, or $1.25 million, respectively.
And so on…
You'd still earn $100,000 per year in passive income from each of 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), Northern Star Resources Ltd (ASX: NST), 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 Suncorp Group Ltd (ASX: SUN), QBE Insurance Group (ASX: QBE), Rio Tinto Ltd (ASX: RIO) or defensive assets like Telstra Group Ltd (ASX: TLS). These all pay a yield around 3% to 5%.
For a higher 5% to 6% dividend yield, I'd look at reliable payers like APA Group (ASX: APA) or Origin Energy Ltd (ASX: ORG).
Lendlease Group (ASX: LLC) and Charter Hall Long WALE REIT (ASX: CLW) yield around 7% to 8%.
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%.
