Here’s how I’m targeting a near-£46k retirement income with dividend shares!

Looking for ways to generate a large passive income stream in retirement? Consider this approach employed by our writer Royston Wild.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A senior man shortlisting stocks at his kitchen table

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s more than one way investors can target a healthy passive income in retirement. An effective way could be to purchase dividend shares that provide a steady stream of income.

There are other ways to try and achieve the same goal. Individuals can apply the 4% drawdown rule, which involves withdrawing that percentage of an investor’s total portfolio annually. This strategy typically ensures an income for around 30 years before the well runs dry.

Others prefer the security of a guaranteed minimum income through a fixed annuity policy. Variable annuities and indexed annuities are also popular, as they can deliver higher returns while still delivering a level of income stability.

Should you invest £1,000 in Legal & General right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General made the list?

See the 6 stocks

For me, the first option’s the most appealing. This is because:

  • Holding dividend shares can provide a steady income, and potential capital appreciation that grows my portfolio
  • I like the idea of retaining my capital base and maintaining the flexibility of managing and adjusting my investments as needed
  • Buying dividend growth stocks can help my passive income keep pace with (or outstrip) inflation

This is what I’m doing

In order to hit my target, I’m buying a mix of shares to build my portfolio and give me a large pot to eventually invest in high-yielding dividend shares.

When executed effectively, diversification can mitigate risk without sacrificing overall returns. Renowned economist Harry Markowitz famously said it’s “the only free lunch in investing“.

I own a mix of value, growth and dividend shares that provide the potential for share price appreciation along with a steady income. I also spread my money across a variety of sectors and geographies to provide a smooth return across the economic cycle and protect my overall returns from problems in one or two areas.

With this strategy, I’m targeting what I consider a realistic average annual return of 9%. The amount I invest each month varies, but if I invested £500 a month I would — after 30 years — have a portfolio worth around £915,372 (excluding broker fees), based on that return.

If I then ploughed that into 5%-yielding dividend stocks I’d have a yearly passive income of roughly £45,769. There’s a good chance that would allow me to live comfortably in retirement.

A top stock

Admittedly there’s a potential flaw in my strategy that could impact my passive income in retirement: dividends are never, ever guaranteed. We saw this during the Covid-19 pandemic, when scores of companies either reduced, postponed, or cancelled altogether shareholder payouts.

However, investors can limit the chances of a passive income strategy by purchasing an array of high-yielding dividend shares. My plan is to hold around 10-15, including Legal & General (LSE:LGEN), which I already own in my portfolio.

Legal & General’s very cash-generating, which allows it to pay a large and rising dividend every year. Payouts here in fact have grown every year since the late 2000s.

Despite the threat of major market competition that can’t be ignored when assessing an investment in this company, it has a great chance to grow profits, thanks to seismic demographic changes. As the number of elderly people across its territories increases, demand for retirement, protection and wealth products is tipped to explode.

With a robust Solvency II capital ratio of 223%, Legal & General can invest heavily to exploit this while still continuing to pay huge dividends.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Royston Wild has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »