Can I build a £50k passive income in 10 years?

The best thing about having a high passive income is it gives me so many more options in life. My goal is to generate a further £50,000 this way in a decade.

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Of all the various types of income, my favourite’s passive income — the earnings from various sources outside work. And though I love writing about financial markets, early retirement will bring the joys of both chilling and travelling.

Five income streams

Currently, my focus is on these five forms of passive income:

Savings interest is perhaps the safest unearned income, thanks to government guarantees protecting deposit accounts. I could earn 5%+ a year before tax in a top savings account, but I tend to hold cash mostly for emergencies.

Bonds are IOUs (debts) issued by governments and companies. They pay ‘coupons’ (interest) and then return my initial investment on maturity. I’m thinking of buying ultra-safe UK Gilts and US Treasurys for my family portfolio.

Buy-to-let investing involves buying properties to rent out to tenants. This seems like hard work to me, but I know several people who’ve ridden this route to riches.

Pensions are growing in importance for me and my wife. She has a big pension pot, built up from years of hard work and investing. Alas, my rag-tag pile of pensions is worth considerably less.

We both have the State Pension coming in spring 2035. This should exceed a combined £25k a year, delivering half of our £50k target for extra income.

Share dividends are my #1 form of passive income. As American business tycoon John D Rockefeller once quipped: “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”

I love dividends

Though I’m not as driven by dividends as Rockefeller, they are a major pillar of my family’s future. All four of us own stocks, shares and funds to generate dividends.

By reinvesting our current dividends into more shares, we can boost this income stream 10 years hence. That said, dividends aren’t guaranteed, so they can be cut, or cancelled, without notice.

One dividend dynamo

I reckon that another decade of patient investing, plus our forthcoming State Pensions should add, say, at least another £50,000 a year to our passive income. My hope is to have unearned income exceeding £100,000 a year, building a brighter financial future for my tribe.

To raise a further £25k a year, I reckon we need to invest under £3k a month for a decade, growing at 8% a year. This will deliver over £500k, which will comfortably generate this required income.

One company whose shares we own for dividends is FTSE 100 asset manager M&G (LSE: MNG). Founded in 1931, M&G listed on the London stock market at 220p a share in October 2019. As a leading investment manager, this firm’s shares oscillate as financial markets zig-zag.

At their 52-week high, M&G shares peaked at 241.1p on 21 March. They’ve since dropped 21.3% to 198.75p, valuing this group at £4.7bn. Over one year, this stock’s down 1.4%, while it’s lost 9.7% of its value since the flotation.

M&G’s bumper dividend yield, currently 9.9% a year, is a big attraction. Also, this stock looks undervalued to me, so I’d like to buy even more of it.

However, I fully expect M&G’s share price to be volatile in the years ahead. In addition, stock market slumps could harm its revenues, earnings and cash flow. But I plan to own this Footsie stock for the long run.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in M&G shares. The Motley Fool UK has recommended M&G. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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