Investing some of your hard-won superannuation savings in ASX dividend shares presents a great opportunity to earn retirement boosting passive income.
If it's an extra $200 a day that you're after, then that equates to $73,000 a year. (We'll leave those pesky leap years out of this!)
And that should be plenty to live a comfortable retirement.
According to the latest data from the Association of Superannuation Funds of Australia (ASFA), a couple who own their home needs $78,566 a year to live 'comfortably'. So, we're right in the ballpark with our $200 a day in passive income here.
We'll look at how high your super balance should be to achieve that income without drawing down your balance, and a few top ASX dividend stocks you might want to consider buying, below.
But first…
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A few important points
To try to ensure that the real value of our passive income stream doesn't get eroded by inflation over time, we'll aim to invest our superannuation in S&P/ASX 200 Index (ASX: XJO) dividend shares whose capital growth (share price gains) at least matches inflation levels.
For example, the S&P/ASX 200 Gross Total Return Index (ASX: XJT) – which includes all cash dividends reinvested on the ex-dividend date – has gained 45% over the last five years. That works out to 7.7% annual gains compounded. As you'll see below, that's more than the annual yield we're targeting.
We'll also preference ASX dividend shares with franking credits. Those give you credit for the 30% in corporate taxes the companies you're buying have already paid on their profits. And it should allow you to retain more of those dividends when it's time to pay the ATO what's due.
With that said…
How much superannuation do I need for $200 daily passive income?
The precise super balance you'll need to earn an average of $200 a day in passive income will depend on the yield you're getting.
I believe the three ASX 200 dividend stocks below (each operating in different sectors) provide a reasonable example of the long-term yield you can expect to achieve.
So, the first stock you may want to buy with your superannuation is Aussie mining giant Fortescue Ltd (ASX: FMG)
Over the past 12 months, Fortescue has paid (or shortly will pay) two fully franked dividends totalling $1.08 a share. At the recent Fortescue share price of $17.19, Fortescue trades on a 6.3% fully franked dividend yield.
Second, we have rail freight operator Aurizon Holdings Ltd (ASX: AZJ).
Over the past 12 months Aurizon has paid (or shortly will pay) two dividends, 90% franked, totalling 23 cents a share. At the recent Aurizon share price of $3.74 Aurizon trades on a dividend yield of 6.2%.
And the third stock I'd buy for long-term passive income is Westpac Banking Corp (ASX: WBC).
Over the past 12 months, the big four Aussie bank has paid out $1.54 a share in fully franked dividends. At the recent Westpac share price of $35.06, Westpac trades on a fully franked dividend yield of 4.4%.
To the maths!
Assuming you invest an equal amount into each of the above ASX 200 dividend stocks, you can expect to earn a yield of 5.6%.
So, to earn $200 a day in passive income without drawing down your superannuation balance, you'd need that balance to be around $1.3 million.
And remember, we're aiming for a comfortable retirement level for a couple. So that can be a combined balance as well.
