Passive income is now my main investment obsession, because earning money without working every hour of the day feels like the ultimate freedom. In retirement, it’s essential. So how do I get there?
Quick answer: by investing in FTSE 100 dividend stocks. Most of my long-term savings already sit inside a Self-Invested Personal Pension (SIPP), but I’m adding steadily to my Stocks and Shares ISA as well. I’m not convinced I’ll ever stop working completely, but I want the option to do so, and a strong flow of income would make that far easier.
A £1,000 weekly income obviously adds up to £52,000 a year. That’s a serious sum, and it doesn’t come cheap. If the portfolio generated a 5% yield it would require a pot of around £1.04m. That’s not pocket change, but the effect on quality of life would be transformative.
Long-term investment planning
This kind of income doesn’t appear overnight. It takes time and effort, but may be more achievable than many assume. Let’s take a 40-year-old who already has £100,000 spread across pensions and ISAs. If they invest £300 a month and achieve an average return of 8% a year, they’d end up with roughly £1.23m by age 68. Regular increases to contributions over the years would push that figure higher still.
That assumes they reinvest every dividend they receive. Each payment buys more shares, which then produce more income in future, as the compounding effect gathers momentum. It’s slow at first, but becomes increasingly powerful.
That’s why I focus on dividend-paying giants from the FTSE 100, rather than chasing fashionable growth stories. One that stands out today is wealth manager M&G (LSE: MNG).
M&G’s a high-yield star
Its shares are up around 47% over the past year, which is remarkable for a stock prized more for income than share price growth. Add in a trailing yield of roughly 7.1% and the total one-year return pushes 55%. We can’t expect that every year though.
Much of this comes down to its solid financial position and rising profits, but also a broader reappraisal of UK financial shares. As interest rates fall and cash returns fade, high income stocks like this one look far more appealing.
I added M&G to my SIPP when it was yielding a staggering 10%. It’s been eroded by the rising share price, but with the board looking to increase shareholder payout by 2% a year, it’s still brilliant.
Dividends are never guaranteed, and M&G must keep finding new business to fund them, while the shares could wobble if confidence fades or markets crash at some point.
Building resilience over time
No single share can deliver a dependable retirement income on its own. Diversification’s essential. I prefer to spread money across around 15 stocks from different sectors, blending high income with modest growth potential. Some investors might consider buying M&G as part of that mix, but it shouldn’t stand alone.
Generating a second income of £1,000 a week won’t happen overnight. It takes patience and long-term discipline. A new year is the perfect time to start. Make this resolution last, even as the others fade and are forgotten.
