A comfortable retirement means something different to everyone, but having a target in mind for your retirement income brings peace of mind.
There are calculators online, such as the federal government's Moneysmart calculator, which can show you how much in today's dollars you are likely to have at retirement, depending on your current circumstances.
This is extremely useful as it allows you to adjust your superannuation contributions if you feel you'll be falling short of what you need.
But how do you figure out what you need in the first place?
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What is a comfortable retirement?
According to the Association of Superannuation Funds of Australia's (ASFA) retirement standard, singles need $56,166 in income per year to have a comfortable retirement, while couples need $78,998.
Their definition of a comfortable retirement involves the ability to afford top-level private health cover, to own and maintain a reasonable car, to travel occasionally and to afford social activities.
Keep in mind, though, that ASFA's standard assumes you own your own home and also draw a part pension once you hit the age of 67.
How much superannuation do I need to earn $70,000 per year in passive income?
Today we're assuming you're aiming for an income stream of $70,000 per year.
I will calculate this on the basis of dividends alone, with no drawdown of capital.
If you were able to earn a very high dividend yield of 10%, you'd need just $700,000 in retirement savings.
I'd suggest this level of earnings is unsustainable.
If you earned just 5% you'd need double this, at $1.4 million.
But I'd argue that with the benefit of franking credits, this is aiming too low.
So let's assume you could earn 7.5%. In this case, you'd need $933,333 in superannuation savings.
Franking credits are crucial to this equation. If you invest in fully franked dividends, you get back all the tax the company has already paid.
This is because retirees are not taxed on their superannuation earnings.
In practical terms, this means a share paying a 5% dividend yield actually pays 7.14% once franking credits are included.
So what shares might help hit this target?
Real estate investment trusts can be solid investments.
Digico Infrastructure REIT (ASX: DGT) pays a 4.65% dividend, albeit unfranked, GPT Group (ASX: GPT) pays 5.38%, and Centuria Office REIT (ASX: COF) pays 11.36%.
Infrastructure stocks such as APA Group Ltd (ASX: APA) and toll roads operator Atlas Arteria Ltd (ASX: ALX) pay healthy dividends of 5.33% and 8.98%, respectively.
Among the utilities, Origin Energy Ltd (ASX: ORG) is paying 5.14% fully franked, AGL Energy Ltd is paying 5.9%, and Telstra Ltd (ASX: TLS) is paying 4.34%, 90% franked.
In the financial services sector, Regal Partners Ltd (ASX: RPL) is paying 11.53%, Bank of Queensland Ltd (ASX: BOQ) is paying 6.08%, and Westpac Banking Corporation (ASX: WBC) is paying 4.45%.
How to give your super a boost
If you want to top up your superannuation, it's also worth reading up on concessional contributions, which are contributions you can make to your superannuation each year up to a cap of $32,500, which are only taxed at 15%.
Keep in mind that the $32,500 cap includes any employer contributions and salary sacrifice contributions.
