Superannuation is one of the best tools investors can use to build wealth due to its lower tax rate. Australians can also use superannuation to invest in certain assets for high passive income.
We don't necessarily need to access the passive income immediately for it to be a good investment. Australians may appreciate owning investments with stable earnings that deliver consistent payouts year to year.
Given that superannuation has a lower tax rate than individual tax rates for full-time earners, there's less of a headwind for the after-tax passive income returns compared to investments made outside of super.
There are many different passive income investments available to people who utilise self-managed superannuation funds (SMSFs). Other super funds can allow investors to invest in assets such as S&P/ASX 300 Index (ASX: XKO) shares – many businesses in that index are appealing options for income.
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How to generate $2,500 of monthly passive income from superannuation
Each household has a different financial situation. There isn't a one-size-fits-all approach that I can outline that would say what everyone's net income would be. With that in mind, I'll just talk about gross income, which is before taxes and expenses.
Generating $2,500 of monthly passive income translates into $30,000 per year.
The amount you need to invest to reach that income goal depends on the dividend yield, or interest rate, of the investments.
I'll give you an example. If someone had $1 million invested with a 3% dividend yield, it would generate $30,000 of annual income.
If the dividend yield were higher, an investor wouldn't need as much invested in superannuation to create that same level of annual or monthly passive income.
For example, if an investor's portfolio had a 4% dividend yield, an investor would require $750,000.
A 5% dividend yield would mean investors require a $600,000 portfolio.
If the dividend yield was 6% then the portfolio value required would only be $500,000.
Where I'd invest for a high dividend yield
If I were looking for a high level of monthly passive income, I'd focus on businesses with a good dividend yield but also have delivered reliability.
Some of the names I'd consider would be MFF Capital Investments Ltd (ASX: MFF), WCM Global Growth Ltd (ASX: WQG), Future Generation Global Ltd (ASX: FGG), Future Generation Australia Ltd (ASX: FGX), Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW), Hearts and Minds Investments Ltd (ASX: HM1), Rural Funds Group (ASX: RFF) and PM Capital Global Opportunities Fund Ltd (ASX: PGF).
But, I also wouldn't ignore investments with somewhat lower yields that have a track record of regular dividend growth as well as appealing capital growth.
