The State Pension isn’t as big as we’d like, but it has one big attraction. It increases each year, under the triple lock. That means it rises in line with inflation, earnings or 2.5%, whichever is highest.
This year the full new State Pension is £12,547. Unfortunately, that’s below the income required for a basic ‘minimum’ lifestyle, according to the Retirement Living Standards survey.
| Lifestyle target | Single person | Couple |
| Minimum | £ 13,400 | £ 21,500 |
| Moderate | £ 31,700 | £ 43,900 |
| Comfortable | £ 43,900 | £ 60,600 |
That makes it essential to save under your own steam, and the Stocks and Shares ISA is a brilliant way to do it. A popular method of building wealth is to invest in a diversified spread of FTSE 100 stocks, which offer both share price growth and dividend income. And it’s all tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
How much money do you need?
So how much do you need in your ISA to generate £12,547? The answer depends on the yield on your divideds. The bigger the yield, the smaller the pot required, as this list shows.
- 4% – £313,675
- 5% – £250,940
- 6% – £209,117
Those sums may look daunting, but you may be surprised to see how much you can get by investing regular sums during your working lifetime.
Someone who tucked away £175 a month for 30 years would end up with £256,926, for example. This assumes their portfolio delivers an average total return of 8% a year. Stock markets can be volatile in the short term, but offer vastly superior returns to cash over the longer run.
Which income stocks should I consider?
Today, 27 FTSE 100 stocks yield 4% or more. A handful yield 7% or 8%, including Land Securities Group (LSE: LAND). Also known as Landsec, it manages a portfolio of offices, shopping centres and retail parks. This gives it a regular stream of rental income, plus growth from property disposals.
Landsec is structured as a real estate investment trust, or REIT. These are exempt from paying corporate tax so long as they pay 90% of their property rental profits to shareholders.
Today, it has a bumper trading yield of 7.11%. And like the State Pension, the income should rise over the years. Landsec has lifted its dividend every year this millennium apart from three. Two of those were during the financial crisis, the third in the pandemic. Over the last five years, dividends have increased at an impressive 8.8% a year.
Yet it’s been a bumpy time for the sector as the working from home trend hit demand for office space, while e-commerce and the cost-of-living crisis knocked retail footfall. The Landsec share price is down 18% over five years, and 4% over the last 12 months.
With the UK economy continuing to struggle, I’m not expecting an instant revival. But reflecting that, the shares look decent value with a trailing price-to-earnings ratio of 11.3.
Investors should aim to invest in a spread of at least a dozen FTSE 100 income shares, and for those who consider Landsec (which I think is worthwhile), it needs to be balanced with stocks that have more growth potential.
Harvey Jones has no positions in the shares mentioned. The Twelfth Magpie has recommended Land Securities Group Plc. 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 and Hidden Winners.
