How much do I need in my superannuation to earn $50,000 per year in passive income?

Your superannuation is more than just a pot of savings to fund your retirement. It can also generate a regular passive income once you retire and transition to the pension phase. 

But exactly how much superannuation do you need to be able to earn passive income as high as $50,000 every single year?

Let’s investigate.

How much do I need in my superannuation to generate an annual $50,000 passive income?

The calculation is simple. You need to divide your annual passive income by the dividend yield of your total portfolio, and it’ll give you the amount you’ll need to invest.

The tricky part is that the answer varies significantly depending on your portfolio’s actual yield.

That means a 3% yielding superannuation portfolio would need to be double the size of one that yields 6%.

For $50,000 in passive income on a portfolio yielding 3%, you’d need a superannuation balance of around $1.66 million, because $50,000 ÷ 3% = $1,666,666.

Then, if your portfolio yields closer to 4%, you’d need a superannuation balance closer to $1.25 million to earn the same passive income.

To earn $50,000 per year on a 5% yielding portfolio, your balance would need to be around $1 million.

Increase that to 6%, and you’d need more like $833,000.

If you go higher again to 7% or 8%, you’d be able to earn $50,000 in annual passive income from a $714,000 or $625,000 balance, respectively.

And so on. The higher your yield is, the lower your superannuation balance needs to be.

Can’t I just invest in the highest-yielding ASX shares so that I can earn the same amount off of a lower superannuation balance?

Yes, but it doesn’t make good investment sense. 

When it comes to ASX dividend shares, generally the higher the yield, the higher the risk associated with that stock.

Ideally, you want a diversified portfolio of a range of good-quality ASX shares from different sectors and with a variety of different yields. 

And remember, you don’t need to invest the whole sum in one go. Start with a monthly investment and let compound growth do some of the hard work for you.

Give me some examples of ASX shares that I could look at

ASX blue-chip shares like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and CSL Ltd (ASX: CSL) all yield around the 3% level.

If you want something that yields a little higher, at around 4% or 5%, my picks would be something like Telstra Group Ltd (ASX: TLS), Endeavour Group Ltd (ASX: EDV) and NIB Holdings Ltd (ASX: NHF).

Then, for higher-yielding ASX shares, my picks would be APA Group (ASX: APA), Metcash Ltd (ASX: MTS), Fortescue Ltd (ASX: FMG), or Lendlease Group (ASX: LLC). At the time of writing, these shares yield between 6% and 8%.

The post How much do I need in my superannuation to earn $50,000 per year in passive income? 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. The Motley Fool Australia has positions in and has recommended Apa Group, NIB Holdings, and Telstra Group. The Motley Fool Australia has recommended BHP Group and CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.