How much passive income could a $500,000 superannuation balance generate?

A $500,000 superannuation balance can start to take on a new purpose once retirement arrives.

After years of building the balance, the focus may shift towards what that money can provide each year.

There are several ways to approach that, and I would be careful not to focus on the biggest possible income number.

Start with a sustainable approach

For me, retirement income should come from investments I would still be comfortable owning for years.

That could mean holding a mixture of dividend-paying ASX shares, exchange-traded funds (ETFs), and other assets rather than filling the portfolio with whichever shares currently offer the highest dividend yields.

A large dividend can be tempting, but it becomes far less attractive if the underlying business struggles and eventually cuts the payment.

I would prefer companies with dependable cash flows and a reasonable chance of at least maintaining (but preferably increasing) their dividends over time.

What could the income look like?

How much income a $500,000 balance could generate depends on how the money is invested.

At an average yield of 4%, the portfolio would produce around $20,000 a year.

A 5% yield would increase that to approximately $25,000, while 6% would generate around $30,000.

I think somewhere in that range gives investors a sensible idea of what could be possible without assuming an unusually high yield.

The income would not necessarily stay the same every year. Dividends can rise, fall, or occasionally disappear, which is another reason I would spread the portfolio across several investments.

Which ASX shares might help?

Telstra Group Ltd (ASX: TLS) could be one income holding I would consider.

Its mobile and internet services generate recurring demand, while the company has placed a growing dividend at the centre of its shareholder return plans.

Aurizon Holdings Ltd (ASX: AZJ) offers another type of income exposure through rail infrastructure and freight operations.

I might also consider Sonic Healthcare Ltd (ASX: SHL). Diagnostic testing provides exposure to healthcare demand, and the company has a long history of returning cash to shareholders.

These would only form part of a broader portfolio. I would want enough diversification that my retirement income was not overly dependent on one company or industry.

Growth still has a role

A retiree may need their superannuation to last for decades.

That means I would still want some investments capable of growing earnings and distributions over time.

Inflation gradually reduces what $20,000 or $25,000 can buy, so a portfolio that can produce increasing income has an advantage.

I would also be comfortable selling a small amount of investments when necessary rather than insisting that every dollar of retirement spending must come from dividends.

Foolish takeaway

A $500,000 superannuation balance could potentially generate somewhere around $20,000 to $30,000 a year from investments yielding between 4% and 6%.

I would be more interested in building a durable income stream than pushing for the top end of that range.

For retirement, I think a diversified portfolio with dependable income and some room for growth gives that $500,000 the best chance to keep working for years.

The post How much passive income could a $500,000 superannuation balance generate? appeared first on The Motley Fool Australia.

More reading

• $10,000 a year in passive income buying just $10k worth of ASX shares? Here’s how I’d go about it
• How much do I need in my superannuation to earn $10,000 passive income every month?
• Post-earnings: I’d buy these ASX dividend stocks for income today
• How I’d target $5,000 a year in passive income from ASX shares
• These ASX shares benefit from a high Aussie dollar

Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. 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 Telstra Group. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.