Superannuation is a popular tool to earn a passive income for your retirement years.
If you can invest wisely, it helps you build wealth for later on in life. And in the meantime, you benefit from low tax rates and long-term compounding.
But what can that passive income actually look like?
Let's break down how much you could earn every single year from a $600,000 superannuation balance.
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What passive income can I earn off a $600,000 superannuation balance?
The easiest way to calculate your passive income is by multiplying your total superannuation balance by the overall dividend yield of your portfolio.
The tricky part is that the answer varies widely depending on what dividend yield you pick.
For example, $600,000 x 3% = $18,000 per year in dividend payments.
But if your portfolio has a slightly higher dividend yield of around 4%, your passive income will be higher. That's because $600,000 x 4% = $24,000 per year in dividend payments.
Raise it again to 5%, and you could earn $30,0000 every year in dividend payments off the same superannuation balance ($600,000 x 5% = $ 30,000).
At a 6% yield, you could earn an annual passive income closer to $36,000 and at 7% that could be even higher, at around $42,000.
And so on…
As your dividend yield increases, the passive income you can earn off your $600,000 superannuation balance also increases.
These figures are based on cash dividends before any tax or franking credit benefits.
Which ASX shares should I invest my superannuation in if I want to earn $24,000 per year in passive income?
A 4% yielding portfolio of this size would earn around $24,000 per year in passive income. There are plenty of high-quality ASX shares around this level.
Some of my favourites include Telstra Group Ltd (ASX: TLS) and banking giants National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). Cedar Woods Properties Ltd (ASX: CWP) and Mff Capital Investments (ASX: MFF) also yield around the 4% level at the time of writing.
And, which ASX shares will earn me $48,000 per year in passive income?
To earn $48,000 per year in passive income from a $600,000 superannuation balance, your portfolio will need to yield around 8%.
It's on the high side, and of course, the higher the yield, the more risk the portfolio carries. But it's still achievable.
If you're wanting to focus on high yield ASX shares I'd look at listed investment trusts (LIT)'s like the Metrics Master Income Trust (ASX: MXT) or the Metrics Income Opportunities Trust (ASX: MOT). These both target a return of 7-10%, and currently yield around 8%.
Exchange-traded funds are another good option for high yield investments. Such as the Betashares S&P Australian Shares High Yield ETF (ASX: HYLD) or the Global X S&P/ASX 200 Covered Call ETF (ASX: AYLD). These both yield in the 8-9% range at the time of writing.
