A $650,000 superannuation balance is slightly above the current benchmark for a comfortable retirement.
It's the type of nest egg that many Aussies aspire to have. They focus hard on building their superannuation balance, ensuring the fund is performing well, and adding extra voluntary contributions wherever they can.
It's a solid plan. But did you know that if you invest your superannuation wisely, you could also generate a passive income to live off when it's time to retire?
But how much passive income could a $650,000 balance realistically generate each month?
Let's break it down.
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What passive income can I earn off a $650,000 superannuation balance?
The math is simple.
To calculate your potential passive income, you simply need to multiply your total superannuation balance by the overall dividend yield of your portfolio.
But the problem is that the answer varies widely depending on what that dividend yield is.
For example, $650,000 x 3% = $19,500 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 $650,000 x 4% = $26,000 per year in dividend payments.
If your superannuation portfolio yields closer to 5%, you could earn $32,500 every year in dividend payments off the same superannuation balance ($650,000 x 5% = $32,500).
Then, at a 6% yield, you could earn an annual passive income of around $39,000, and at 7%, it could be even higher, at around $45,500.
And so on…
As your dividend yield increases, the passive income you can earn from your $650,000 superannuation balance also increases.
Note too that these figures are based on cash dividends before any tax or franking credit benefits.
Give me some ideas of what ASX shares I can invest my superannuation in
There is a huge range of shares out there, and their dividend yields vary significantly.
Some of my top picks would be defensive stocks. These are companies whose earnings tend to remain relatively steady throughout times of economic instability. They typically operate in "non-discretionary" industries where demand remains relatively stable even when consumer confidence dips.
Their stable nature means they can help reduce the volatility of an overall investment portfolio. This is particularly valuable during times when geopolitical tensions are ongoing and inflation is stubbornly high.
These can be supermarket, telecommunications, or infrastructure stocks. Demand for food items and essential services is generally stable throughout all sections of the economic cycle. Think Coles Group Ltd (ASX: COL), TPG Telecom Ltd (ASX: TPG), and Chorus Ltd (ASX: CNU). These shares yield between 3% and 6%.
Major blue chips like Wesfarmers Ltd (ASX: WES) and BHP Group Ltd (ASX: BHP) are generally considered cyclical stocks but with strong defensive qualities (rather than pure defensive stocks). These types of shares are highly regarded for their dominant market position and stable dividends. At the time of writing, the shares yield around 3% to 4%.
Diversify your portfolio
Remember that if you want to aim for, say, a 5% yielding portfolio, not every stock in that portfolio has to yield 5%. You should aim for a diversified range of shares yielding varying amounts, which combined total 5%.
It's also best 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.
And 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.
