How much superannuation is needed to target $5,000 per month in passive income?

Superannuation is a popular tool to help build wealth for your retirement years. 

Not only is it a great way to get a passive income source when you transition to the pension phase, it comes with the added benefit of low tax rates and compound growth.

But how much do you need in your super to be able to get the passive income you want?

Let's investigate, using $5,000 per month in passive income as an example.

How much do I need in my superannuation to get a passive income of $5,000 every single month?

To calculate how much you'll need in your superannuation, first you need to work out what $5,000 in monthly passive income would equal over the entire year. 

So, $5,000 x 12 = $60,000.

Then you need to divide your annual passive income by the dividend yield of your overall portfolio. 

For example, $60,000 ÷ 3% = $2 million (that's the portfolio size you'd need).

The catch is that the answer varies depending on your dividend yield.

That 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. 

Break it down for me

Say your overall portfolio has a slightly higher dividend yield of around 4%, you'll need a balance of around $1.5 million to earn the same $60,000 per year (equivalent to $5,000 per month) in passive income.

Of course, $2 million, or even $1.5 million, is a huge figure. 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 5%, for example, your balance would need to be closer to $1.2 million to earn the same dividend income.

For a 6% yielding portfolio, you'd need a balance of closer to $1 million to earn the same amount.

Increase that to a 7%, or 8% dividend yield, and you're looking at closer to $900,000 or $750,000, respectively. 

And so on…

You'd still earn $60,000 per year in passive income from each of these portfolio sizes.

However, note that most ASX dividend shares pay dividends on a semi-annually or yearly basis. Which means that while you could target the equivalent of $5,000 per month in passive income, you won't actually receive the money on a month-by-month basis, but instead in a lump sum.

What ASX shares can I buy around these dividend yields?

There are a large range of ASX dividend shares available for superannuation investment. 

Here are some examples to help point you in the right direction.

Lower-yielding ASX dividend-paying shares such as Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES) and Lottery Corporation Ltd (ASX: TLC) offer yields of around 2% to 3%.

For a mid-range yielding ASX dividend option, I'd look at Eagers Automotive Ltd (ASX: APE), Lovisa Holdings Ltd (ASX: LOV), Nick Scali Ltd (ASX: NCK) or Westpac Banking Corp (ASX: WBC). These all pay a yield around 3% to 5%. 

For a higher 5% to 6% dividend yield, I'd look at reliable payers like Sonic Healthcare Ltd (ASX: SHL) APA Group (ASX: APA) or Metcash Ltd (ASX: MTS).

Orora Ltd (ASX: ORA), McMillan Shakespeare Ltd (ASX: MMS) 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 GQG Partners Inc (ASX: GQG), Bapcor Ltd (ASX: BAP), or the BetaShares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX). These typically yield anywhere between 9% and 12%.