How much superannuation is needed to generate $150,000 per year in passive income?

A $150,000 annual passive income would finance an excellent retirement lifestyle. 

And it’s more achievable than you’d think.

You could rent out your assets, invest in property, try your hand at e-commerce, or, my personal favourite, you could use your superannuation balance to invest in some dividend-paying ASX shares.

By investing your superannuation into income-focused shares, you can create a steady stream of passive income in retirement, especially once you transition your super into the tax-free pension phase.

Here’s how it works.

While working, investment earnings and dividends inside super are taxed at a concessional rate of 15%. Once you retire and convert your super into an account-based pension (retirement phase), investment earnings and dividend income become 100% tax-free.

But the question is, how much do you need in your super to be able to earn this level of passive income when you transition to your pension phase?

Let’s take a look.

What superannuation balance do I need to generate $150,000 in annual passive income?

To calculate the amount of superannuation you need to earn $150,000 in passive income every year, you’ll need to divide your annual passive income by your portfolio’s dividend yield.

The only issue is the answer can vary significantly depending on what that yield is.

The general rule of thumb is that the passive income increases in line with your dividend yield. 

This means that a portfolio with a dividend yield of say, 5%, would only need to be half the size of one with around a 2.5% dividend yield, to earn the same annual passive income. 

I’d like my portfolio to yield around the ASX average. What does that look like?

The S&P/ASX 200 Index (ASX: XJO) provided an average dividend yield of 4.2% in FY26.

In order to generate a $150,000 passive income off a 4.2% yielding portfolio, you’d need a superannuation balance of around $3.6 million.

There are several ASX 200 shares around this level so your options are broad. 

I’d look at defensive shares which can help ward off volatility elsewhere in a portfolio. Telstra Group Ltd (ASX: TLS) and Inghams Group Ltd (ASX: ING) both have strong defensive qualities and all yield around the 4.2% level, at the time of writing.

ASX bank shares are another good option. Three of the big four major banks, ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC), all yield around the 4.2% level, at the time of writing.

I think this amount of superannuation is out of reach. What are my other options?

As I mentioned earlier, as your yield goes up, the superannuation balance you need goes down.

So a $3.6 million superannuation balance might be out of reach for many Australians, but you can still earn the same amount off a lower balance.

On a 5% yielding portfolio, you can generate $150,000 per year in passive income off a $3 million superannuation balance.

Raise that to 6% and you’d need closer to $2.5 million.

Hike that again closer to 7% and you could earn $150,000 off around $2.1 million.

You can raise your overall portfolio yield even higher, to 8% or even far beyond, but it’s important to note that generally, the higher the yield, the riskier that stock is.

The post How much superannuation is needed to generate $150,000 per year in passive income? appeared first on The Motley Fool Australia.

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