How much superannuation do I need to generate $100,000 per year in passive income?

Your superannuation isn't just a savings pot for retirement; it can also generate a regular passive income to live off when you decide to quit work.

A $100,000 annual passive income generated completely from your superannuation balance is entirely possible.

This type of money sits well above the estimated cost for a comfortable retirement lifestyle. And it means your passive income will cover most of your expenses without needing to draw down aggressively on the rest of your balance. 

In retirement, you can move your superannuation from an accumulation phase to a retirement phase. This is where you can convert your savings into a regular income stream or withdraw lump sums. 

At this point, you can set up your superannuation to provide a regular income from your investment income, leaving the rest largely untouched, or you can withdraw dividend income in lump sums.

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.

How much do I need in my superannuation to earn an annual passive income of $100,000?

To calculate the amount of superannuation you need, you'll need to divide your annual passive income by the dividend yield of your portfolio.

The catch is that 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.

This means that a portfolio with a dividend yield of say, 3%, generally needs to be double the size of one with a 6% dividend yield in order to earn the same passive income. 

Ok, what if my portfolio yields somewhere between 3% to 6%? How much do I need?

Say your overall portfolio has a dividend yield of around 3%, you'll need a balance of around $3.3 million to earn $100,000 per year in passive income. That's because $100,000 ÷ 3% = $3,333,333.

Of course, $3.3 million is a huge balance, and out of reach for most Australians.

But remember, as your yield increases, the required balance goes down. 

For example, if the yield of your portfolio is around 4%, your balance would need to be closer to $2.5 million to earn the same $100,000 annual dividend income.

For a 5% yielding portfolio, you'd need a balance of closer to $2 million.

And then a 6% yielding portfolio could generate $100,000 in passive income from a sound $1.6 million.

Give me some ideas of 4% to 5% yielding ASX shares that I can invest my superannuation in

There are many ASX dividend shares available for superannuation investment, and many of them yield around 4% to 5%.

But here are some of my top picks.

I'd consider defensive shares such as Telstra Group Ltd (ASX: TLS), Transurban Group (ASX: TCL), or Inghams Group Ltd (ASX: ING). 

Otherwise, insurance shares are generally resilient to market volatility. QBE Insurance Group Ltd (ASX: QBE), Medibank Private Ltd (ASX: MPL), and Insurance Australia Group Ltd (ASX: IAG) are all good options in this sector, and they generate a yield of around the 4% to 5% level at the time of writing.

Elsewhere, ASX energy shares are also able to generate reliable dividends for investors. Such as Origin Energy Ltd (ASX: ORG), Contact Energy Ltd (ASX: CEN), or Mercury NZ Ltd (ASX: MCY).

The post How much superannuation do I need to generate $100,000 per year in passive income? appeared first on The Motley Fool Australia.

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 positions in and has recommended Transurban Group. The Motley Fool Australia has positions in and has recommended Telstra Group and Transurban 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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