How much superannuation do I need to earn $90,000 per year in passive income?

Superannuation is a fantastic tool to help Australians build wealth to support themselves in retirement.

Your super provides the benefit of concessional tax rates, and compound growth.

It can also act as a tool to generate a passive income once you transition to the pension phase.

But how much superannuation do you need to accumulate to target your ideal passive income amount?

Let’s investigate, using a $90,000 annual passive income as an example.

How much do I need in my superannuation to get $90,000 per year in passive income?

To calculate the balance you need, you need to divide your ideal annual passive income by the dividend yield of your portfolio.

For example, $90,000 ÷ 3% = $3 million (that’s the amount you’ll need in your superannuation to earn the $90,000 per year).

A $3 million superannuation portfolio isn’t achievable for many Australians. But the good news is that as your dividend yield increases, the superannuation balance needed to earn the same passive income decreases. 

For example, a portfolio with a dividend yield of around 6% only needs to be half the size of one with a dividend yield of around 3% to generate the same level of passive income.

What balance do I need if my portfolio yields 4%, 5% or 6%?

We already know what portfolio size you’d need to earn $90,000 per year off a 3% yielding account.

But if your overall portfolio has a slightly higher dividend yield of around 4%, you’ll need a balance of around $2.25 million to earn the same $90,000 per year in passive income.

If the yield of your portfolio is higher still, at around 5% for example, your balance would need to be closer to $1.8 million to earn the same dividend income.

For a 6% yielding portfolio, you’d need a superannuation balance closer to $1.5 million to earn the same amount again.

And so on…

You’d still earn $90,000 per year in passive income from each of these superannuation balance sizes.

Diversification is key

It can be tempting to go for the highest-yielding portfolio so you don’t need as much in your superannuation.

But that would be a risky move. The higher the yield, generally the more risk associated with that stock.

Also note, if you want a portfolio yielding around 5% or even higher, it doesn’t mean that every investment in that superannuation portfolio has to yield that level. It can be a combination that yields 5% overall.

And remember, you don’t need to invest the whole sum in one go. Start with a monthly investment and let compound growth do some of the hard work for you.

I’d look at splitting my superannuation portfolio into investments across several different yielding assets, preferably across different sectors.

This diversification strategy means that if one asset drops in value, its performance can be offset by other ASX shares, leading to a more consistent overall result.

I’m aiming for a 5% yielding superannuation portfolio, what ASX shares can I invest in?

To earn a $90,000 passive income off a 5% yielding portfolio, you’d need around $1.8 million saved.

There are plenty of good-quality ASX shares around this level. But here are my top picks.

Defensive shares like Telstra Group Ltd (ASX: TLS), Transurban Group (ASX: TCL), AGL Energy Ltd (ASX: AGL) or APA Group (ASX: APA) are a solid choice for income-seeking investors. These all yield around the 5% level, at the time of writing.

Non-discretionary ASX consumer staples stocks are also naturally defensive, but many of them yield slightly less. Supermarket giants like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) can generate stable cash flow across all phases of the economic cycle. This translates to consistent dividends for shareholders. These shares pay around 3%, at the time of writing.

Elsewhere, ASX shares like Amcor Ltd (ASX: AMC), Ebos Group Ltd (ASX: EBO) and Harvey Norman Holdings Ltd (ASX: HVN) are popular options for income-seeking investors.