According to a recent 2026 survey by financial comparison site Finder, 26% of UK adults have a Stocks and Shares ISA. And most of them presumably aim to generate a passive income from them.
Meanwhile, the UK National Living Wage for those aged 21 or over has risen to £12.71 per hour. That equates to approximately £24,785 per year, depending on hours worked.
I think that could make a nice goal for investors aiming for retirement income from their Stocks and Shares ISA. Retiring on minimum wage isn’t exactly going to produce a life of luxury. But added to the State Pension, plus other things like work pensions, it could mean a significant bump in living standards.
No tax to pay
ISA holders have a distinct advantage — because ISA earnings are tax free, and the National Living Wage figure is before tax. To match actual take-home pay, an ISA investor would need to earn around £21,000 per year. Let’s dig in an see how that might be possible.
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.
What’s your retirement target?
Hitting that £21,000 annual goal depends on, for one thing, the annual return an investor can achieve. The following table shows how much would be needed, based on three different income rates. That’s the 4% often recommended in order to try to preserve capital, the 6.9% returned on average by the FTSE 100 per year over the past 20 years, and a more ambitious 10%.
I include how long it could take to reach the needed totals, assuming each year’s contributions compound at the same target rate. So that’s how many years it would take at 4% per year to then generate £21,000 annually at the same 4% — and so on.
| Return rate | Invested per month | Target income | Total required | Years to target |
| 4% | £500 | £21,000 | £525,000 | 38 years, 0 months |
| 4% | £1,000 | £21,000 | £525,000 | 25 years, 6 months |
| 6.9% | £500 | £21,000 | £304, 350 | 21 years, 2 months |
| 6.9% | £1,000 | £21,000 | £304, 350 | 14 years, 10 months |
| 10% | £500 | £21,000 | £210,000 | 15 years, 5 months |
| 10% | £1,000 | £21,000 | £210,000 | 10 years, 4 months |
Pick a stock
One way to build up passive income is to target stocks that pay dividends, and reinvest the cash to compound up. Barratt Redrow (LSE: BTRW) catches my eye at the moment, for a few reasons.
One is that it has a forecast dividend yield of 7%, almost bang on that 6.9% FTSE 100 average return. Now, the yield is so high because the share price has fallen 68% in the past five years — house building really has been in the dumps.
Companies don’t guarantee dividends, and can cut them in tough times. And this has clearly been a risky business. But I think investors should look to the future — which I expect to be bright for the sector. I just can’t see the UK’s chronic housing shortage ending any time soon.
Balanced approach
The key, as we can see in the table, is to invest as much as we can each month for as long as we can. And I think investors could do well to consider Barratt Redrow as a part of the plan.
Alan Oscroft does not hold any positions in the companies mentioned.
