Superannuation is one of the best things about Australia's retirement system.
Tax changes announced earlier this year have made non-superannuation investments less attractive – capital gains are going to be taxed more, negative gearing's appeal is being reduced, and trust distributions are under the spotlight.
With the lower tax rate during the accumulation phase and potentially a 0% tax rate in the retirement phase of superannuation, it's an effective investment vehicle for people saving towards retirement and in retirement too.
Tax makes a big difference for passive income because it's the after-tax income figure that investors can use.
Every investment that pays dividends comes with a dividend yield.
The dividend yield is influenced by two factors.
First, there's the dividend payout ratio – how much of a business' profit is paid out as a dividend. The more they pay out, the bigger the dividend yield.
Higher dividend yields aren't necessarily better, but they do mean an investor can receive more passive income for the same portfolio balance.
For example, someone with a $200,000 investment balance at a 3% dividend yield would have $6,000 in annual passive income.
Targeting $120,000 of annual passive income would need a sizeable portfolio.
Potential investments with a 7% dividend yield to consider for high dividend yields in superannuation include MFF Capital Investments Ltd, WCM Global Growth Ltd, Future Generation Global Ltd, Telstra Group Ltd, and Medibank Private Ltd.