A $700,000 superannuation balance is a great starting point.
It sits above the $630,000 balance that the Association of Superannuation Funds of Australia (ASFA) thinks every Australian needs for a comfortable retirement, and below the asset cut-off point for a part Age Pension payment.
This amount of money means you’ll be able to live well when you decide to stop working. But if you invest that money wisely, it could also generate an additional passive income that’ll turn a comfortable retirement lifestyle into an affluent one.
Think frequent travel, luxury property, and flexible discretionary spending.
So, how much passive income can you earn off a $700,000 superannuation balance?
And what ASX shares could you invest in?
Let’s take a look.
The calculation
There is a straightforward calculation to work out what passive income a $700,000 passive income could generate.
If you multiply your total superannuation balance by the overall dividend yield of your portfolio, it’ll give you the passive income you could generate.
The answer changes depending on your dividend yield, which helps you identify what you need to invest in to earn the income you want.
Generally, as your yield goes up, the passive income you can earn off the same balance also increases.
How much could I earn off a 2% to 3% yielding superannuation portfolio?
A 2% yielding portfolio is at the lowest end of the scale. Off a $700,000 superannuation balance, you’d generate around $14,000 in passive income. That’s because $700,000 x 2% = $14,000 in dividend payments.
It’s not a huge amount, but the benefit of a super low yielding portfolio is that this would generally be focused on traditional and reliable blue-chip shares rather than towards high-growth ASX stocks.
Think Woolworths Group Ltd (ASX: WOW), Macquarie Group Ltd (ASX: MQG), and even CSL Ltd (ASX: CSL). These shares are each huge in scale, have a long history of paying dividends to shareholders, and they yield somewhere in the 2% to 2.5% range, at the time of writing.
On a 3% yielding portfolio, you could earn a little more, at closer to $21,000 per year in dividend income, off the same balance.
Stocks around the 3% level typically offer investors a balance between a moderate, reliable passive income, and some capital growth potential.
Think Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), and Wesfarmers Ltd (ASX: WES). These powerhouses all offer a yield of around 3% to 3.5% at the time of writing.
What about a 4% to 5% yielding superannuation portfolio?
If your superannuation portfolio yields closer to 4% or 5%, you could earn even more, at closer to $28,000 or $35,000 per year in passive income, respectively.
This is often considered by investors as the “sweet spot” between stability and growth. Companies in this bracket are typically large-scale blue chips, major banks, or defensive infrastructure shares.
For example, Rio Tinto Ltd (ASX: RIO), Medibank Private Ltd (ASX: MPL), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), Deterra Royalties Ltd (ASX: DRR), Transurban Group (ASX: TCL), and Telstra Group Ltd (ASX: TLS) all yield around this bracket, at the time of writing.
What about higher yielding ASX shares, around the 6% to 8% level?
It’s possible to earn even more if your superannuation investment portfolio is high yield, but this comes with a lot more risk. Investors would need to accept lower growth, or potentially even share price declines, in place of a higher passive income.
There are still plenty of options around this level, though.
Some examples are Harvey Norman Holdings Ltd (ASX: HVN), Premier Investments Ltd (ASX: PMV), or Nick Scali Ltd (ASX: NCK).
Real Estate Investment Trusts (REITS) also typically offer a higher yield thanks to their predictable rental income. Such as, Charter Hall Long WALE REIT (ASX: CLW), Waypoint REIT Ltd (ASX: WPR), and HomeCo Daily Needs REIT (ASX: HDN).
The post How much passive income can I earn off a $700,000 superannuation balance? appeared first on The Motley Fool Australia.
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Motley Fool contributor Samantha Menzies has positions in BHP Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Macquarie Group, Transurban Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Harvey Norman, Telstra Group, and Transurban Group. The Motley Fool Australia has recommended BHP Group, CSL, HomeCo Daily Needs REIT, Macquarie Group, Nick Scali, Premier Investments, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.