How much do I need in my superannuation to get $5,000 per month in passive income?

Superannuation is the most tax-effective way for working Australians to build a long-term passive income.

The drawback is that you can’t access your funds until you reach your preservation age, which is typically around 60 years old, and you’ve met the conditions of release.

The good news is that by investing now, you can benefit from low tax rates, compounding, and eventually a tax-free passive income once you transition to the pension phase.

The question is, how much do you actually need in your superannuation to be able to receive the passive income you want when the retirement years hit?

Let’s break it down, using $5,000 per month as an example.

How much do I need in superannuation to get $5,000 of monthly passive income?

If you want to earn $5,000 in passive income every month from your superannuation, that equates to $60,000 per year in dividend payments.

The easy way to work out the superannuation balance you’d need is to divide your annual passive income by the dividend yield.

The tricky part is that the answer varies widely depending on the dividend yield of the ASX shares you’d have in your portfolio. 

For example, a portfolio with a dividend yield of around 6% only needs to be half the size of one with a dividend yield of around 3% to generate the same level of dividend income.

Let’s break it down further.

A $2 million portfolio with a 3% dividend yield would create $60,000 of annual passive income.

A $1.5 million portfolio with a 4% dividend yield would create $60,000 of annual passive income.

To get the same $60,000 of annual passive income from a portfolio with a 5% dividend yield, you’d need closer to $1.2 million. And if the portfolio’s dividend yield is closer to 6%, the portfolio size could be more like $1 million.

And so on. As your dividend yield increases, the superannuation balance needed to earn the same level of passive income goes down.

What ASX shares can I get around these dividend yields?

There is a huge range of ASX dividend shares available for superannuation investments, and their yields vary significantly. 

But here are a few options to get you started.

Lower yielding ASX dividend-paying shares such as Wesfarmers Ltd (ASX: WES), Coles Group Ltd (ASX: COL), Macquarie Group Ltd (ASX: MQG), and Washington H. Soul Pattinson and Co Ltd (ASX: SOL) are solid and reliable shares that offer a yield of around 2% to 3%.

For a mid-range yielding ASX dividend option, I’d look at defensive assets like Telstra Group Ltd (ASX: TLS) or Transurban Group (ASX: TCL), and blue-chip majors like BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), which pay a dividend of around 3% to 4%.

For a higher 5% to 6% dividend yield, I’d look at dividend-payers like National Australia Bank Ltd (ASX: NAB), Woodside Energy Group Ltd (ASX: WDS), or packaging giant Amcor (ASX: AMC).

If you want to take on more risk and go for a much higher-yielding ASX stock, my picks would be something like the BetaShares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX) or the Metrics Income Opportunities Trust (ASX: MOT). These typically yield around 9% or more. 

The post How much do I need in my superannuation to get $5,000 per month in passive income? appeared first on The Motley Fool Australia.

More reading

• Australia’s new Age Pension rules: Age, income and asset tests explained
• The perfect ASX ETF retirement portfolio alongside your super
• How to invest $9,000 for passive income in superannuation?
• 10 amazing ASX ETFs for the next decade
• How to build a $1 million ASX share portfolio for retirement

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group, Transurban Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Amcor Plc, Telstra Group, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended BHP Group, Macquarie Group, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.