How much is needed in superannuation to target a $2,500 monthly passive income?

Superannuation is one of the best avenues that investors can utilise to invest and build wealth due to the lower taxation environment. It can also be a place to invest in assets that can unlock high passive income.

We don’t necessarily need to be able t access the income immediately for it to be a good investment – it could be a great asset because of earnings stability and the more consistent returns that it delivers year to year.

Considering superannuation has a lower tax rate, there’s less of a drag on after tax passive income returns compared to investments outside of super for a full-time working Australian.

Plenty of investors can invest in passive income assets through self-managed superannuation funds (SMSFs). Other super funds also offer the ability to invest in areas such as S&P/ASX 300 Index (ASX: XKO) shares – there are plenty of options within that index for income.

How to generate $2,500 of monthly passive income from superannuation

Each investor’s situation will be different, so there’s no one-size-fits-all approach that I can outline to say what the net income would be. Therefore, I’ll focus on the gross income, before taxes and costs.

Generating $2,500 of monthly passive income equates to $30,000 per year.

The amount required to be invested would depend on the dividend yield (or interest rate) of the investments.

For example, if someone had $1 million invested with a 3% dividend yield, that would generate $30,000 of annual income.

But, with a larger dividend yield, an investor wouldn’t need as much in superannuation to create that same level of annual/monthly passive income.

For example, with a 4% dividend yield, an investor would need $750,000.

A 5% dividend yield suggests investors would need a $600,000 portfolio.

If the dividend yield were 6% then it would require just a $500,000 portfolio.

Where I’d invest for a high yield

If I were looking for investments to unlock a high level of monthly passive income, I’d focus on businesses with a good dividend yield.

I’d look at names like MFF Capital Investments Ltd (ASX: MFF), L1 Long Short Fund Ltd (ASX: LSF), WCM Global Growth Ltd (ASX: WQG), Charter Hall Long WALE REIT (ASX: CLW), Centuria Industrial REIT (ASX: CIP), Rural Funds Group (ASX: RFF), Universal Store Holdings Ltd (ASX: UNI) and Hearts and Minds Investments Ltd (ASX: HM1).

But, I wouldn’t want to forget about somewhat lower-yielding businesses that have a track record of regular dividend growth as well as attractive capital growth.

The post How much is needed in superannuation to target a $2,500 monthly passive income? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Hearts And Minds Investments, L1 Long Short Fund, Mff Capital Investments, Rural Funds Group, and Wcm Global Growth. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Rural Funds Group. The Motley Fool Australia has recommended Mff Capital Investments and Universal Store. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.