How much passive income can I earn from a $950,000 superannuation balance?

A superannuation balance of $950,000 is significantly higher than the Australian national average for all age groups.

It also comfortably exceeds what the Association of Superannuation Funds of Australia (ASFA) determines is necessary for a comfortable retirement.

It's a solid amount of money to support a good retirement lifestyle, but there is an additional bonus. A balance as high as $950,000 can also generate a great passive income from ASX dividend shares.

Here's how much you could earn.

What passive income could a $950,000 superannuation balance generate?

To calculate your potential annual passive income, you need to multiply your total superannuation balance by the overall dividend yield of your portfolio.

But obviously, the answer changes depending on what that yield is.

Generally, as your yield goes up, the passive income you can earn off the same balance also increases.

Break it down for me by yield

If your portfolio is low-yielding, at around 3%, you'll be able to earn around $28,500 per year in passive income. That's because $950,000 x 3% = $28,500 in dividend payments.

There are lots of stable options around this level. Investment bank Macquarie Group Ltd (ASX: MQG) yields around 3%, as does banking giant Commonwealth Bank of Australia (ASX: CBA) and conglomerate Wesfarmers Ltd (ASX: WES).

Then, if you increase your yield closer to 4%, you could earn a little more. A $950,000 portfolio could generate around $38,000 per year at this yield.

There are still lots of great options around the 4% level. Think mining giants BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO), or telcos like Telstra Group Ltd (ASX: TLS). Some of the other major banks, including National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ) also yield around this level at the time of writing.

If you can raise your yield higher towards 5%, your passive income would increase to around $47,500 every year. 

My top 5% yielding ASX shares would be defensive infrastructure companies like Transurban Group Ltd (ASX: TCL) or Dalrymple Bay Infrastructure Ltd (ASX: DBI). 

Raise your portfolio's yield even higher to 6% and you could earn a $57,000 annual dividend income off the same superannuation portfolio. That's a decent passive income!

Around this level, I'd lean towards shares like APA Group Ltd (ASX: APA) or AGL Group Ltd (ASX: AGL). These both have a long history of paying long term reliable dividends to shareholders and they also yield around the 6% level.

Can't I just invest in the highest yield stock I can find so I can earn more off my superannuation balance?

There are dividend shares available which pay much higher yields, some which even exceed over 15%. 

But remember, the general rule is that the higher the yield, the more volatility and risk associated with that stock.

When it comes to ASX dividends, high-yielding shares could be cyclical businesses that fluctuate significantly with market cycles, niche companies with strong cash conversion, or perhaps they have discounted share prices. 

It doesn't mean high-yield shares should be avoided, but instead, they should be part of a diversified portfolio.

The post How much passive income can I earn from a $950,000 superannuation balance? appeared first on The Motley Fool Australia.

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 Macquarie Group, Transurban Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Apa Group, Telstra Group, and Transurban Group. 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.

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