A big chunk of my retirement strategy is buying FTSE shares to build a passive income to fund my final years.
Retirement sneaks up on you. While I still expect to continue working for another 10 to 15 years, that’s not as long as it seems. Time moves faster as you get older, as I’ve been discovering. It will be here sooner than I think.
Being patient
Also, building up a passive income from shares is a long-term job. It would be different if I had a big lump sum at my disposal, but I don’t. Instead, I have to drip feed money into the market, whenever I have cash to spare. It’s the same for most people.
The ideal time to start buying shares to generate a passive income at retirement is at birth, but of course nobody does that! Most don’t start until their 30s or even 40s, which luckily still allows plenty of time to build a decent passive pot.
Let’s say someone invested £200 a month from age 35 and increased this by 3% a year to keep up with inflation. By 68, they’d have made cumulative contributions of £126,007.
Assuming their portfolio grew at an average rate of 7% a year after charges, these monthly payments would have grown to a hefty £394,200. If our saver withdrew 4% in retirement (known as the safe withdrawal rate) they’d generate passive income of £15,768 a year.
Better still, they wouldn’t have to touch any of their capital, which would continue to rise with markets (as would their income). Markets can also fall, as we’ve seen this year, but over the longer run the trajectory tends to be upwards.
As I’m only 15 years away from retirement, time is no longer on my side. If I invested £200 a month I would only put away £44,637 in total, which 7% annual growth would lift to £77,108. Drawing 4% of that would give me just £3,084 a year.
I’m buying dividend stocks in 2023
Happily, I’ve already built a halfway decent portfolio, but it’s nowhere near enough. Now I need to raise my game. In 2023, I’m going to get even more serious about buying income stocks and here’s the good news.
Right now, the FTSE 100 is packed full of top stocks offering high yields at low valuations. The index as a whole yields a decent but not spectacular 3.63%. However, I prefer to buy individual stocks, and they should help me generate much higher levels of passive income.
Insurer Aviva now yields 6.49% and trades at a low P/E of 7.9 times earnings. Housebuilder Taylor Wimpey yields 8.11% and trades at 5.83 times earnings. Miner Rio Tinto yields 10% and trades at 5.2 times.
These aren’t recommendations, just observations. Next year, I’m going to do some intensive research on top FTSE 100 passive income stocks, and invest as much as I can afford in them. I’ve got no time to waste. Truth is, few of us have.
