For those with a full record of National Insurance contributions, the State Pension (as of 10 April) is £12,548 a year. But according to Pensions UK, over £31,000 more is needed for a single person to have a comfortable retirement.
One way of boosting your income in old age is to invest in the stock market. But how much would be needed to produce an income stream three times higher than the current State Pension? Let’s find out.
Some numbers
The current yield on the FTSE 100 is 2.8%. To produce the additional £31,352 — which when added to the State Pension of £12,548 gives a retirement income of £43,900 – an investor would need a Stocks and Shares ISA worth £1.12m.
Perhaps surprisingly for an index full of more UK-centric shares, the FTSE 250’s yielding 3.9% at the moment. An ISA valued at £803,897 is needed at this higher rate of return.
But I think it’s possible to do much better. The top 10 FTSE 100 stocks are offering a return of 6.7%. The figure for the five highest yielders is currently 7.4%. With these numbers, an ISA would have to be worth £467,940 and £423,676 respectively to reach our target income for a comfortable retirement.
Great for income
One stock that’s currently yielding slightly more (7.8%) is Standard Life (LSE:SDLF), formerly Phoenix Group. Someone would need to own £401,949 of the pension and savings group’s shares to produce dividends of £31,352 a year. Of course, holding just one share in a portfolio is a bad idea.
Sometimes, a high yield’s caused by a falling share price. Not in this case. Shares in Standard Life are now changing hands for 27% more than they were in April 2023. Since its 2022 financial year, the group’s raised its dividend by 9%.
But savvy investors know that dividends don’t come with any guarantees. And Standard Life’s generous payout could come under threat if earnings shrink or fail to grow in line with expectations.
To help fund its obligations it manages a large portfolio of investments. At 31 December 2025, it owned £309bn of financial assets including £111bn of equities. Volatile markets will result in erratic investment returns. If the current ceasefire in the Middle East doesn’t hold, the group’s earnings could be hit.
Another threat could come from increased competition.
My view
However at the moment, the group’s performing well with 2025 being another strong year for the group. Operating cash generation increased 5% compared to 2024. And adjusted operating profit rose by 15%. In addition, there was a 7% rise in assets under administration and its Solvency II ratio improved by four percentage points to 176%.
Also, it appears to be operating in the right sector at the right time. In my opinion, it’s likely to be one of the biggest beneficiaries from the anticipated 70% increase in the size of the UK’s long-term savings and retirement market.
For these reasons, I think Standard Life’s a stock that pensioners looking to supplement their income from the state (and other younger investors too) could consider.
