Your superannuation is a great way to collect a pot of money to fund your retirement.
But did you know it can also become a regular source of passive income once you stop working? It can help cover day-to-day expenses and enable you to enjoy the lifestyle you've worked hard for.
The idea is pretty simple. Instead of sitting as idle cash, your money stays invested and generates dividends and capital growth. You can then use your super to pay a regular income through retirement.
The ultimate goal for many Australians is a $1 million superannuation balance. But exactly how much passive income could a portfolio this size actually generate each month?
Let's investigate.
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What passive income can I earn from my $1 million superannuation balance?
To calculate your potential passive income, you need to multiply your total superannuation balance by the overall dividend yield of your portfolio.
But the problem is, the answer varies widely depending on what dividend yield you pick.
For example, $1 million x 3% = $30,000 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 $1 million x 4% = $40,000 per year in dividend payments.
If your superannuation portfolio yields closer to 5%, you could earn $50,000 every year in dividend payments off the same superannuation balance ($1 million x 5% = $50,000).
At a 6% yield, you could earn an annual passive income of around $60,000, and at 7%, it could be even higher, at around $70,000.
And so on…
As your dividend yield increases, the passive income you can earn from your $1 million superannuation balance also increases.
Note that these figures are based on cash dividends before tax or franking credits.
Also note that most ASX shares pay dividends to shareholders every six months, which means you'll receive the passive income in chunks rather than on a monthly or annual basis.
Can't I just invest in the highest-yielding ASX shares to earn the highest passive income?
Technically 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.
Diversification is key
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.
Also remember, if you want a 5% yielding portfolio, for example, that doesn't mean that every investment has to yield 5%. It can be a variation which equates to a combined overall 5% yield.
And remember, you don't need to invest the whole sum in one go. Start with regular monthly investments and let compounding do some of the hard work for you.
Ok, give me some options of ASX shares I can invest my superannuation in
There are a huge range of ASX dividend shares available at a wide range of yields, but here are some of my top picks right now.
Defensive shares like Telstra Group Ltd (ASX: TLS), Transurban Group (ASX: TCL), or APA Group (ASX: APA) are a solid choice for income-seeking investors. These all yield between 4% and 5.5%, at the time of writing.
Non-discretionary ASX consumer staples stocks are also naturally defensive. Supermarket giants like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) can generate stable cash flow across all phases of the economic cycle. This translates to consistent dividends for shareholders. These shares pay a slightly lower dividend, between 2.5% and 3%, at the time of writing.
Elsewhere, ASX bank stocks remain a popular choice. The four major banks dominate the S&P/ASX 200 Index (ASX: XJO) by market capitalisation, and their defensive qualities mean their shares often bounce back during economic recovery. Commonwealth Bank of Australia (ASX: CBA) yields around 3%, while National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ) all yield a little higher, at around 4.5%.
