To live comfortably in retirement, most of us in the UK will need a healthy pot of savings or investments. With no tax on capital gains, dividends, or withdrawals, using an ISA can greatly increase one’s chances of reaching that goal.
With no age restrictions on the Cash ISA or Stocks and Shares ISA, either, these products can be a great option for individuals seeking an early retirement. But how much money would someone need in them to draw a £30,000 annual passive income at age 55?
A 16-year ISA plan
Based on a drawdown rate of 4%, an individual would need £750,000 across their ISAs for a regular £30,000 second income to supplement their State Pension.
On paper, that appears like an enormous sum of money. But the experience of many investors shows it’s more than achievable with the right investing strategy and patience.
With a diversified portfolio of global stocks, I think it’s realistic to target an average annual return of 9%. That’s bang in the middle of the 8% to 10% return range that long-term investors have traditionally enjoyed.
If someone used their full £20,000 Stocks and Shares ISA allowance at the start of each year and achieved this return, they’d reach their target pot in 16 years. To be more precise, they’d have £765,804 sitting in their retirement fund.
There are bound to be bumps along the way. Stock prices can go up and down, while dividends can also be volatile. But with patience and time, the power of compounding can turn regular investing into serious long-term wealth.
A hot growth share
Holding a wide range of shares across sectors and regions can help smooth out any turbulence over time. There’s no right or wrong investing strategy, but I think owning a balanced mix of growth, value, and dividend shares can pay off over the long term.
Growth stocks can deliver strong returns as earnings take off and share prices follow suit. Value shares can also rise sharply in price as investors recognise their underlying worth. Dividend stocks can complement these by providing stability across the economic cycle through regular cash rewards.
Volution Group (LSE:FAN) is a FTSE 250 growth share that’s recently grabbed my attention. The business — which supplies ventilation systems across the UK, Continental Europe, and Australasia — has seen its shares rise a whopping 265% in the last five years.
What makes it worth attention is the considerable structural opportunities in its locker. Governments across its markets are tightening energy efficiency and air quality standards for new and existing buildings. The company also stands to benefit from rising housebuilding construction in its main UK market.
Sales to the commercial sector could weaken during economic downturns. But so far Volution has managed to navigate such pressures, with organic revenues at group level rising 5.7% in the 12 months to July, beating City forecasts.
As part of a diversified ISA portfolio targeting long-term returns, I think Volution shares are worth serious attention.
