I plan to fund my retirement by generating a regular passive income from a portfolio of FTSE 100 shares.
A Stocks and Shares ISA feels like the ideal home for those shares, because all my growth and dividends will be free of tax for life. If I could generate an income of £1,750 a month, I’d be more than happy. That works out as £21,000 a year. So how much do I need to generate that kind of income?
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The answer depends on the yield achieved. Here’s the rough amount required:
- 4% yield: £525,000
- 5% yield: £420,000
- 6% yield: £350,000
As those figures show, a higher yield dramatically reduces the amount needed. Thankfully, plenty of FTSE 100 shares offer generous income today. One stock I wish I’d bought years ago is insurer and asset manager Aviva (LSE: AV). It currently offers one of the highest trailing yields on the blue-chip index at 6.3%.
Can Aviva keep paying such a generous income?
The Aviva share price has had a good run too, climbing 55% over five years. All dividends are on top. However, momentum has slowed. Over the last 12 months, the stock is up just 2.6%.
The Iran conflict has rattled markets. Investors worry that rising oil prices could push inflation higher again, which may keep interest rates elevated for longer and hit economic growth. That uncertainty has left Aviva looking a little choppy, despite several years of steady pre-tax profit growth.
- 2025 – £2.203bn
- 2024 – £1.767bn
- 2023 – £1.467bn
- 2022 – £1.350bn
- 2021 – £1.630bn
Some investors may also feel nervous about the valuation. The trailing price-to-earnings ratio stands at 23.3, well above the FTSE 100 average of around 16. I think that reflects expectations that growth may cool after a strong run. Although on a forward basis, based on 2026 earnings, it drops sharply to 12.1.
Analysts expect the dividend to keep climbing as well. The forecast yield for 2026 is 6.66%, and that’s expected to hit 7.11% in 2027. Dividends are never guaranteed, but those forecasts look highly attractive.
Should investors worry about the risks?
There are threats, of course. Aviva just spent £3.7bn buying Direct Line and now faces a big integration job. Combining systems, operations and staff is always risky. If management gets it wrong, anticipated cost savings could vanish. They might spiral instead.
Insurers also remain tied to the claims cycle. A run of expensive weather events or rising motor repair costs can quickly squeeze profits. Aviva has to keep hunting for new business, and while it’s found an exciting opportunity in the business pension risk transfer market, competition’s fierce.
Personally, I think it’s worth considering. The income prospects look excellent and the valuation doesn’t seem excessive on future earnings. That said, after such a strong five-year run, I might just watch and wait to see whether markets wobble this summer.
If Aviva dips, I’ll be tempted to buy it and bag that fabulous passive income.
Should you invest £5,000 in Aviva Plc right now?
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Harvey Jones does not hold any positions in the companies mentioned.
