A Self-Invested Personal Pension (SIPP) is a terrific way to build a big pot of money for later life. But how much does an investor need to invest to target a passive income of £750.75 a week?
That works out at £39,039 a year, which is the average UK full-time salary. Added to the State Pension and any workplace pensions or ISA savings, and it could transform retirement. So how much do you need in a Self-Invested Personal Pension, to use its full name, to generate it? The answer depends on the yield generated by the stocks you buy.
- At a 4% dividend yield, an investors needs a portfolio worth £976,000.
- At 5%, that falls to £780,780.
- At 6%, the target drops again to £650,650.
Those are big numbers, but remember, £39,039 is a huge second income. Also, those figures assume the investor doesn’t touch their capital at all, just draws the dividends. In practice, most of us will do both.
Do I get a tax break?
SIPPs have one huge upfront attraction. Investors get tax relief on contributions. As a result, each £100 invested only costs a higher-rate taxpayer £60. This gives your money an instant lift, and means all your share price growth and dividend income starts rolling up from a higher base.
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.
A popular way to build up wealth is to assemble a balanced portfolio of shares from the FTSE 100 and FTSE 250. One company investors might consider is FTSE 100 insurer and asset manager Aviva (LSE: AV). Lately, its shares have been flying.
The Aviva share price is up 58% over five years. Growth has slowed lately, which often happens after a strong run, but I still think there’s a good opportunity here.
Chief executive Amanda Blanc has driven the business to new heights. She’s simplified operations, reduced costs and improved cash generation. Aviva has also rewarded shareholders with generous dividends. The trailing yield is currently 6.1%. That’s forecast to hit 6.46% next year.
The company’s also positioned to benefit from rising demand for retirement products as the population ages. That doesn’t mean it’s risk free. The recent £3.7bn purchase of Direct Line creates a major challenge, as integrating a large acquisition is never simple.
How risky are Aviva shares?
Aviva is also heavily exposed to the underpowered UK economy, and a prolonged downturn could hit insurance demand and profits. A global stock market crash could hit the value of the assets it holds to cover insurance claims.
Aviva shares don’t look as cheap as they did, as the price-to-earnings ratio has climbed above 23. However, that falls to 12.1 based on next year’s expected earnings. If profits grow as forecast, that could help support both the share price and future dividends.
No investment is guaranteed, and there are always risks when buying shares. Yet I think Aviva is well worth considering for a long-term income portfolio. I’d buy it, but I already own two other FTSE 100 insurers. Both have done well, but Aviva’s done even better.
Should you invest £5,000 in Aviva Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva Plc made the list?
Harvey Jones does not hold any positions in the companies mentioned.
