There are various ways that Australians can invest in ASX shares for passive income. We can invest in our own names, through a company, a trust, superannuation and so on.
Investing for passive income through superannuation makes sense for various reasons, with the low tax rate being a key benefit.
Keep in mind that the net income we receive from our investments is what we receive after taxes. It’s possible that an Australian working full-time could lose a third of their passive income to tax, or more, depending on their tax rate.
Based on that, investing in superannuation is a more appealing prospect due to that lower tax rate.
Super has a lower tax rate in the accumulation phase compared to normal individual tax rates for a full-time earner. In retirement, the tax rate could be 0%.
Every Australian’s tax position is different, so I’ll just talk about targeting a certain income level, without mentioning tax any further.
How much is needed in superannuation for $5,500 of monthly passive income?
Receiving $5,500 per month of dividends translates into $66,000 annually. I’m sure most Australians would love to receive that level of dividends each year without needing to do any ongoing work for it, assuming they don’t already receive that much each year.
A key question is deciding what sort of investments Australians want to own and the dividend yield attached to those stocks.
For example, a portfolio with a dividend yield of 6.6% can be half the size of a portfolio with a dividend yield of 3.3%.
For example, if a portfolio is $1 million in size with a 6.6% dividend yield, it would create $66,000 of annual passive income. If a portfolio had a dividend yield of 3.3%, the portfolio would need to be $2 million in size to make the same level of income.
If the portfolio had a dividend yield of 5%, the portfolio would need to be $1.32 million in size to generate an average of $5,500 per month of monthly passive income.
The final dividend yield we’ll look at is 4%. It would take a portfolio value of $1.65 million to unlock $66,000 of annual dividends.
The sorts of ASX dividend shares I’d look at
There is a wide range of ASX dividend shares available for superannuation investments, investing in our own name or other structures.
Some of the lower-yielding stocks I’d look at are Wesfarmers Ltd (ASX: WES), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), L1 Long Short Fund Ltd (ASX: LSF) and Lovisa Holdings Ltd (ASX: LOV).
Some of the mid-range yielding stocks I’d consider for passive income include WCM Quality Global Growth Fund (ASX: WCMQ), Telstra Group Ltd (ASX: TLS), Rural Funds Group (ASX: RFF) and Centuria Industrial REIT (ASX: CIP).
Among the higher-yielding ASX dividend shares I’d consider are WCM Global Growth Ltd (ASX: WQG), Charter Hall Long WALE REIT (ASX: CLW), Dexus Industria REIT (ASX: DXI), Future Generation Australia Ltd (ASX: FGX), Future Generation Global Ltd (ASX: FGG) and PM Capital Global Opportunities Fund Ltd (ASX: PGF).
The post How much is needed in superannuation to target a $5,500 monthly passive income? appeared first on The Motley Fool Australia.
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More reading
- Want income for life? Here’s how I’d build an ASX dividend portfolio
- If I invest $15,000 in Telstra shares, how much passive income will I receive in 2027?
- 16 ASX 200 shares with ex-dividend dates next week
- Rural Funds Group FY26 earnings: Asset sales boost profit
- How ASX dividend growth shares can build lasting income
Motley Fool contributor Tristan Harrison has positions in Future Generation Australia, Future Generation Global, L1 Long Short Fund, Rural Funds Group, Washington H. Soul Pattinson and Company Limited, Wcm Global Growth, and Wcm Quality Global Growth Fund. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Rural Funds Group, Telstra Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Lovisa and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.