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How I plan to build a £320k Stocks and Shares ISA

Many investors focus on a goal total for their Stocks and Shares ISA, and the magic number is usually a million pounds. At this point, they think, I will have really made it. I’ll be an ISA millionaire.

Humans love round numbers. This makes that seven-figure sum really rather attractive. When you first start investing, it might seem like an impossible dream to get there. And sure, it’s the stuff of fantasy for most of us.

But building £1m in a Stocks and Shares ISA is achievable, with a long-enough runway and some dedicated saving. You might have to give up a few trinkets and expensive hobbies along the way. No cash-sucking sports car at 24 for you. And no yacht until you’re at least 55!

ISA million or bust?

But what I’d like to consider today is that a lofty target of a £1m Stocks and Shares ISA isn’t required for a wealthy and happy life.

Instead, my magic number is exactly £320,000, and I’ll tell you why. Accounting for inflation, I think I can live pretty happily for about £18,000 a year. I only need to take out 5% of my preferred total each year to achieve that. I think the easiest way to do that is with a Stocks and Shares ISA composed of FTSE 100 dividend shares that pay out on a per-share basis.

Nobody knows what the future will hold. We could all be living on colonies on Mars by 2050, but I wager that everyday life will probably be much the same as it is now and traffic will still be terrible in central London. £18,000 in 30 years time could be worth much less than it is today, however.

So my figures could be off by a large factor, depending on the way inflation goes. In the last 30 years, UK inflation averaged 2.54% a year. Inflation would have to skyrocket far beyond previous norms in the next 30 years to pump up that average even as high as 4%.

So based on what I know today, £18,000 a year? When my hair’s turned white and I’m even more wrinkly than I am now, I’d be happy with that.

How Warren Buffett does it

I don’t even need to be that brilliant at picking companies for my Stocks and Shares ISA. For 50 years between 1956 and 2006, Berkshire Hathaway CEO Warren Buffett famously saw his company’s shares enjoying an average 21.4% compound annual gain. He’s worth $68bn today.

Most of us would be thrilled with an annual compound gain of less than half that, at 10% a year.

My future portfolio will probably quite closely resemble what it looks like today. The core will be shares pulled from the best of the FTSE 100. I’m talking about stable dividend growers like Johnson Matthey, SSE or 3i Group. Happily for me, these are solid companies that are historically cheap at the moment because of the 2020 stock market crash.

When I’m ready to down tools permanently and head off to relax in my shed, I’m confident I’ll have compounded my way to my magic number.

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Tom Rodgers has no position in the shares mentioned. 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.