Having a goal in mind for how much income you'd like to receive in retirement can be a very comforting strategy.
So how much do you need? What most of us aim for is a comfortable retirement, which means something different to everyone.
But it's fair to say that an income stream of $3,000 per week would provide a standard of living most people would deem very comfortable.
Image source: Getty Images
How much is needed for a comfortable retirement?
Indeed, the Association of Superannuation Funds of Australia (ASFA) estimates singles will need $55,923 per year to fund a comfortable retirement. So $3,000 per week, or $156,000 per year, is well above this.
The ASFA figure does assume a retiree owns their own home and draws a part pension from the age of 67 when they become eligible.
So, how much superannuation would you need to generate $3,000 per week in passive income?
For simplicity's sake, I will assume that a retiree is living off of dividends and not drawing down any capital.
Naturally, how much you would need in superannuation savings depends on what sort of dividend yield you can regularly rely on.
If the figure was just 5%, you would need $3.12 million in superannuation savings.
I would argue that this figure is too low, as retirees who are paying a zero per cent tax rate get the benefit of franking credits – that is, they get paid back the tax already paid by the companies whose shares they own.
In practice, this means that if a company is paying a 5% dividend yield, what is called the "grossed up" yield comes out at 7.14%.
If you were able to maintain a 10% dividend yield, you'd only need $1.56 million in superannuation, but I'd argue that somewhere in the middle, let's call it 7.5%, is realistic.
At this level you'd need $2.08 million in retirement savings.
Which shares deliver good dividend yields?
So, what are some shares you might consider investing in to deliver these sorts of returns?
Keep in mind that companies with excessively high returns might not be able to sustain them over time.
A class of shares that tends to offer stability over time is infrastructure. In this sector, gas pipeline operator APA Group Ltd (ASX: APA) pays a 5.29% dividend yield, 31% franked, while toll roads operator Atlas Arteria Ltd (ASX: ALX) pays 8.84% with no franking.
Among financial services stocks, Regal Partners Ltd (ASX: RPL) is paying 11.15%, fully franked, while among the banks, Westpac Banking Corporation (ASX: WBC) is paying 4.4%.
Retailer Universal Store Holdings Ltd (ASX: UNI) is paying 5.67% (fully franked), while major retailer Coles Ltd (ASX: COL) is paying 3.29% fully franked.
There are also a diverse array of exchange traded funds such as the Betashares Australian Dividend Harvester (ASX: HVST) which are focussed on dividend payouts, with this one yielding 5.53%.
So as you can see, it's possible to build a portfolio returning a decent yield, which can help hit your income targets.
