Building a healthy superannuation balance can help provide Australians with financial security in retirement.
But many just see it as savings to draw from when they stop working. They overlook how much passive income their nest egg could actually generate once they transition to retirement.
A $500,000 superannuation balance can provide a great foundation for retirement. But how much passive income could it realistically generate each month?
Let's investigate.
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What passive income can I earn off a $500,000 superannuation balance?
To calculate your passive income, you need to multiply 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, $500,000 x 3% = $15,000 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 $500,000 x 4% = $20,000 per year in dividend payments.
If your superannuation portfolio yields closer to 5%, you could earn $25,0000 every year in dividend payments off the same superannuation balance ($500,000 x 5% = $25,000).
At a 6% yield, you could earn an annual passive income closer to $30,000 and at 7% that could be even higher, at around $35,000.
And so on…
As your dividend yield increases, the passive income you can earn off your $500,000 superannuation balance also increases.
These figures are based on cash dividends before any tax or franking credit benefits.
What 3-6% yielding ASX shares can I invest superannuation in?
On a $500,000 balance, a 3-6% yield will earn anywhere between around $15,000 to $30,000 per year in passive income.
BHP Group Ltd (ASX: BHP) and Coles Group Ltd (ASX: COL) yield around 3%.
And 4% yielding options could be something like Santos Ltd (ASX: STO) or Westpac Banking Corp (ASX: WBC).
For a 5% yield I'd look at ASX shares such as APA Group (ASX: APA) or Dexus Industria REIT (ASX: DXI).
And what about options for high-yielding shares, around 7-9%?
Higher-yielding ASX shares often come with additional risk, hence the higher payout.
Some good high-yield options are Premier Investments Ltd (ASX: PMV), IPH Ltd (ASX: IPH), or GQG Partners Inc (ASX: GQG).
Can't I just invest in the highest-yielding ASX shares to receive the highest passive income?
Yes, but it doesn't make good investment sense.
When it comes to investing your superannuation into ASX dividend shares, generally the higher the yield, the higher the risk associated with that stock.
Rather than trying to get rich quick, it's better to focus on a diverse range of high-quality businesses with strong balance sheets and stable earnings. Ideally, you want to focus on stocks that are most likely to stand the test of time.
