Superannuation looks like the best way for full-time working Australians to invest for passive income.
One of the most appealing things about superannuation is that it has a lower tax rate than the company tax rate and the individual tax rate of a full-time worker. Superannuation may have a lower tax rate than trusts as well.
Another positive of investing through superannuation is its structure, which supports long-term investing. For people in the accumulation phase, they could make investments for decades before they can access that money.
The money available to use for passive income is the after-tax amount. This is why superannuation is so advantageous: less of the income is lost to tax compared to most tax brackets for individuals. I'd prefer not to lose a third of my passive income return to tax each year.
Not only is the tax rate lower in the accumulation phase of superannuation, but the tax rate could be as low as 0% in retirement, depending on the superannuation balance.
Of course, the taxation conditions for each household are different, so we'll just consider income goals from here.
How much is needed in superannuation for $12,000 of monthly passive income?
Receiving $12,000 in dividends each month amounts to an annual goal of $144,000. I'd love to receive that level of dividend income.
The question of how much money would need to be invested to generate that much income comes down to the investment's yield. But investors should consider more than just the yield – reliability and growth are also important aspects.
Plenty of ASX shares also attach franking credits to their dividends, boosting the after-tax dividend yield on offer.
Different portfolios can have different dividend yields. A portfolio with a 3.5% dividend yield would need to be double the size of a portfolio with a dividend yield of 7% to generate the same level of passive income.
For example, if a portfolio were $2.06 million in size, it would generate approximately $144,000 of annual passive income with a 7% dividend yield. If the portfolio had a 3.5% dividend yield, it would need to be $4.11 million in size to achieve the same level of annual payments.
Each dividend yield would require a different portfolio size to generate $144,000 annually. For example, a 5% dividend yield would require a $2.88 million portfolio and a 6% dividend yield would require a $2.4 million portfolio.
The types of ASX dividend shares I'd choose to buy
As I said before, if I'm investing for passive income in superannuation, I'd also want to take reliability and growth into account. I believe all of the businesses I'm about to name have better-than-average payout reliability.
If investors want to generate higher dividend yields, I'd look at reliable real estate investment trusts (REITs) and quality companies with franking credits, particularly listed investment companies (LICs).
Some of the businesses with a higher dividend yield I'd look at include MFF Capital Investments Ltd (ASX: MFF), WCM Global Growth Ltd (ASX: WQG), WAM Microcap Ltd (ASX: WMI), Dexus Industria REIT (ASX: DXS), WAM Leaders Ltd (ASX: WLE), Charter Hall Long WALE REIT (ASX: CLW), WAM Microcap Ltd (ASX: WMI) and Universal Store Holdings Ltd (ASX: UNI).
Some of the businesses with a lower dividend yield, but deliver strong growth and/or reliability, include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Rural Funds Group (ASX: RFF), Centuria Industrial REIT (ASX: CIP), L1 Long Short Fund Ltd (ASX: LSF) and Telstra Group Ltd (ASX: TLS).
These aren't the only ASX shares I'd want to add into my passive income portfolio, though.
The post How much is needed in superannuation to target a $12,000 monthly passive income? appeared first on The Motley Fool Australia.
Motley Fool contributor Tristan Harrison has positions in L1 Long Short Fund, Mff Capital Investments, Rural Funds Group, Wam Microcap, Washington H. Soul Pattinson and Company Limited, and Wcm Global Growth. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Mff Capital Investments, Rural Funds Group, Telstra Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Universal Store. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2026