The State Pension currently pays just over £12,547 a year for a full new claimant, which for most people is unlikely to fund a comfortable retirement on its own.
To put that into perspective, research from St James’s Place suggests a “comfortable” retirement costs around £43,900 a year for a single person, rising to £60,600 for a couple.
That leaves a sizeable income gap of more than £30,000 a year between what the government provides and what many would consider a realistic retirement lifestyle.
So how big would an ISA need to be to close that gap and deliver a comfortable retirement income?
How much would an ISA need to contain?
To generate enough passive income to close a retirement shortfall of roughly £31,353 a year, an investor would likely need an ISA portfolio worth around £783,825, assuming a 4% annual withdrawal rate.
That’s clearly a substantial amount of money and far beyond what most people could realistically invest overnight.
However, the important point is that long-term wealth creation rarely happens all at once. Through consistent monthly investing, compounding returns, and reinvesting dividends along the way, even relatively modest contributions can gradually snowball into a much larger portfolio over time.
And that’s why building a sizeable ISA often starts with simply identifying high-quality long-term investments capable of compounding wealth over decades.
So which shares could help build that ISA?
One stock I increasingly like for long-term ISA investors is Aberdeen (LSE: ABDN).
At first glance, the FTSE 250 asset manager may not appear especially exciting. Yet after years stuck in the doldrums, the shares have quietly surged over the past 12 months as confidence in the turnaround has started to rebuild.
Interestingly, the dividend yield has fallen from more than 11% a year ago to around 6.5% today. But in this case, that’s solely down to the fact that the share price has climbed sharply rather than the payout collapsing.
To me, that suggests the market is beginning to reassess the company’s long-term prospects.
A big part of that story is interactive investor, which continues benefiting from structural growth in ISAs and SIPPs as more people take control of their own retirement planning. If those long-term savings trends continue, then earnings growth could become increasingly supported by recurring platform revenues rather than purely market performance.
What also stands out to me is valuation. Despite the recent rally, the shares still trade well below where they sat several years ago, even as operational momentum has started to improve. If inflows continue stabilising and retail investing growth remains strong, I think there’s still meaningful room for sentiment towards the business to recover further.
There are still risks. Asset managers remain highly exposed to investor sentiment and fund flows can quickly reverse during weaker markets.
However, after years of pessimism, I think investors may still be underestimating how much the outlook has improved here. For ISA investors focused on building long-term passive income, I see it as a stock worth considering.
