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How much is needed in superannuation to target $2,000 a week in passive income

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Planning for retirement with a firm idea of what sort of income you might expect from your superannuation is a recipe for peace of mind.

The Association of Superannuation Funds of Australia (ASFA) calculates the amount you need for a comfortable retirement at $56,166 for singles and $78,998 for couples.

Keep in mind that this assumes the retiree owns their own home and will draw a part pension.

But what about if you want to live off dividends from your superannuation alone?

In that case, it’s a good idea to run the numbers on the level of superannuation savings you’ll need.

How much superannuation will I need to earn $2,000 a week?

If you’re aiming for $2,000 per week, or $104,000 per year, you’d need $1.04 million in superannuation if you were able to generate returns of 10% per year.

While some shares do have dividend yields around this mark, it’s unlikely that you’d be able to replicate this high level of returns across a portfolio without being exposed to a high level of risk.

If you earned a 5% return you’d need superannuation savings of $2.08 million.

I’d suggest this is too low a benchmark to aim for given the benefits which accrue to retirees from franking credits.

Retirees who pay no tax are eligible for a full refund on the tax paid by companies they invest in, which for fully franked dividends is a 30% rate.

In practical terms this means a 5% dividend turns into a 7.14% dividend once franking credits are factored in.

So let’s assume you can earn a 7.5% return – this would mean you would need $1.38 million in superannuation savings.

So, what sort of shares might generate the sort of return you are after?

At the upper end of the spectrum Centuria Office REIT (ASX: COF) is forecasting paying dividends of 9 cents per share in FY27, which at the current share price equates to a dividend yield of 10.8%.

Arena REIT (ASX: ARF) has guided to a dividend yield of 7.3%, while HealthCo Healthcare and Wellness REIT (ASX: HCW) is currently on track to pay an 8% yield this year.

Among infrastructure companies, Atlas Arteria Ltd (ASX: ALX) is expected to pay a forward dividend yield of 9.7%, while APA Group Ltd (ASX: APA) has a trailing dividend yield of 5.48%.

Betashares Australian Dividend Harvester ETF (ASX: HVST) is paying 5.67%, while WAM Income Maximiser Ltd (ASX: WMX), which pays monthly dividends, is paying 4.58%.

If your superannuation needs a top up, be sure to read up on concessional contributions, which are tax-effective contributions you can make to your superannuation, up to a cap of $32,500 – which includes contributions made by your employer.

The post How much is needed in superannuation to target $2,000 a week in passive income appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England 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 Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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