Historically, the FTSE 100 has delivered long-term average annual returns of around 4.9% above inflation. Right now, things look a bit messed up on that front — with stock markets unusually energetic, and inflation causing quite some pain.

But if we think about the long term — and that’s all we can really do — it hints at needing a pot of around £373,500. Draw down the 4.9%, and leave the rest to keep up with inflation — that would be the idea.

Cautious investors might prefer to take out less, while others might want to spend more and reserve less. It’s entirely up to each individual.

How can you get there?

“Someone’s sitting in the shade today because someone planted a tree a long time ago”

— Warren Buffett

Like a nice old tree, it’s going to take some time to build up a pot like that.

How long depends on two things — how much money is stashed away each month, and how much is earned every year. So let’s pick a couple of examples — the average annual 6.9% from the FTSE 100 over 20 years, and a more aggressive (but riskier) 10%.

The following table shows how it might go with two different monthly investment amounts — both aiming for that £373,500 target.

Long-term income stock

Aviva (LSE: AV.) is one of my favourite FTSE 100 dividend stocks. It has a forecast 6.2% dividend yield, and that could contribute nicely to an investor’s second income.

The share price has climbed 55% over five years, though I expect that to be something of a one-off. Aviva has gone through a dramatic restructure, and I expect future share price gains to be lower. Still, it wouldn’t take much to match the index average 6.9% per year in total.

Billionaire investor Warren Buffett also famously suggested: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.“

That’s especially true with an insurer, I think, because they tend to be hurt by any stock market pressure. There could be volatility ahead.

How about that 10?

Right now, Greencoat UK Wind has a forecast dividend of 10.2%. And the company reckons it should be able to keep it going. Beware, though, that the big yield comes partly from a five-year share price fall of 23% — wind energy is so out of favour these days. And any failure to meet the expected dividends could hurt.

I reckon investors looking for a second income could to well to consider both of these stocks, in a diversified ISA.

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The question is, how much does one need to invest in a pension to live off the income?

Key caveats

Down the years, London’s stock market has proven a goldmine for individuals seeking a second income. Just last quarter, UK shares paid dividends totalling £16.4bn, according to Computershare. That comprised both ordinary dividends and blowout special dividends.

However, investors need to remember that building the sort of passive income to live off typically takes time and patience. Most of us don’t have an enormous lump sum to invest straight away. Investors usually drip-feed money into the stock market to grow their portfolios over time.

In fact, it might not be good to draw any income at all in the early days. Perhaps not even for decades. Spending dividends instead of reinvesting them can significantly hinder the compounding process. The potential result? A much-smaller income-generating portfolio in retirement.

How much income will I need?

Guessing how much passive income I’ll need when I retire is tough to estimate. My goals in later life might change, as could my financial circumstances. Uncertainty over future costs — both for living and social care — provides another curveball.

So I’ll use projections from Pensions UK to give me an idea. They estimate the average single-person household needs £43,900 a year, and the two-person household £60,600 (working out at £30,300 each). I’ll err on the side of caution and go for the higher amount to make my calculations.

I’ll also strip out the State Pension from my thinking, given uncertainty over the level of future benefits, not to mention at what age I’ll be able to claim. Based on all this, how much will I need in my SIPP?

The answer: £627,143

If I eventually invest my portfolio in 7%-yielding shares for income, I’ll need a SIPP worth £627,143. That’s a pretty big chunk of cash, which leads me to my next question: is this a realistic target for me?

I think so. If I can achieve an average annual return of 9%, I can hit this target by investing in £500 a month for around 26 years. I’m confident the steps I’m taking, like building a diversified portfolio focused on blue-chip global stocks, put me on course for this goal.

One share I’ve recently bought for my SIPP is Aviva (LSE:AV.). In fact, I’ve topped up my holdings several times since opening a position in 2023.

Why, you might ask? To me it’s simple. Aviva’s leading position in the growing financial services market bodes well for long-term growth. It’s also well diversified by product type and operates in different regions, giving it strength across the economic cycle. Finally, its capital-light model means it generates enormous amounts of cash, which it can use for dividends and share buybacks or to invest for further growth.

Could it experience near-term problems as consumer spending weakens? It’s possible. But I’m more focused on the bigger picture, and I think Aviva shares will supercharge the returns I make from my SIPP.

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But there’s one factor many investors still underestimate: how costly delaying can become. Even the best long-term investing strategy becomes less effective if investors spend years waiting for the ‘perfect’ moment to begin.

That’s because successful passive income investing relies not just on owning strong businesses, but also on giving those investments enough time to compound.

The hidden cost of waiting

Compounding is usually shown as an upward-sloping chart. Invest early, stay invested, and wealth can grow significantly over time.

But the chart below flips that idea around. Instead of showing how wealth grows, it shows how much of the full compounding opportunity is still available depending on when an investor starts.

The decline is steeper than many investors realise. Assuming a 7% annual return over 20 years, an investor starting today has 100% of the available compounding opportunity. Wait five years and that falls to roughly 71%. By year 20, only about 26% of the original compounding opportunity remains for someone just starting at that point.

That’s because compounding is exponential. The earliest years carry disproportionate weight, as returns themselves begin generating further returns over time. Once those early years are gone, they cannot be recovered.

Which is why building passive income is not just about selecting strong dividend shares. It’s also about giving those investments enough time to compound.

Chart created by author

Stock compounder

The good news is that compounding isn’t limited to high-growth or speculative stocks. High-quality dividend shares that steadily grow earnings and cash flows can also become powerful long-term wealth builders when given enough time.

One FTSE 100 stock I believe fits that description well is Aviva (LSE: AV.)

The insurer is often viewed primarily through its headline dividend yield of 6.3%. But that framing misses how the business actually creates long-term value.

A clear strategic shift towards capital-light businesses, including wealth management and insurance, is improving returns on capital. Put simply, less capital is now required to generate each pound of earnings.

In addition, the group has resumed share buybacks and set new three-year targets running to 2028, centred on more than £7bn of cumulative cash remittances and stronger returns on equity. These cash flows underpin the company’s ability to support and grow shareholder returns over time.

In effect, value is created at two levels: through direct distributions to shareholders, and through reinvestment into higher-return areas of the business. That’s what makes this more than just a yield story.

What could go wrong

As a large insurer, Aviva remains exposed to financial market conditions, including interest rates and equity markets. These can influence both investment returns and capital generation.

Longer-term assumptions around longevity and insurance liabilities also remain a structural feature of the business model. Mispricing these risks can significantly dent profits.

However, taken together, the shift towards higher-quality earnings and strong capital return potential means the shares still look like one to consider for long-term compounding portfolios.

And crucially, as the earlier chart showed, delaying investment can quietly reduce the compounding opportunity available over time — making the timing of getting started just as important as the stock itself.

The post The best time to start a passive income ISA was yesterday – the second best is today appeared first on The Twelfth Magpie.

What’s more, things could get a lot worse as the UK struggles to fund its booming elderly population. Investors who don’t take action today could be setting themselves up for a fall.

The problem

The Mercer CFA Institute Global Pension Index ranks the world’s State Pensions based on adequacy, sustainability and integrity. It’s the gold standard when it comes to evaluating different pension systems.

So what does it say about the UK? Well out of 52 countries, Britain’s pension system is ranked 12th. So it’s not terrible compared to many other countries. But then again, it’s not outstanding either.

For adequacy, the UK State Pension has just a B+ rating. Given the rising cost of living and social care, this doesn’t come as a surprise.

According to Pensions UK, the average single person requires £43,900 for a comfortable retirement. Stripping out the State Pension, that leaves £31,352 for retirees to make up.

Forget about luxuries like holidays abroad and giving cash gifts to loved ones. A shortfall of this size leaves millions of people in danger of paying for just the essentials.

Here’s what you could do

And things could get much worse for those retiring in the coming decades. Under the sustainability category, Mercer gives Britain’s State Pension a poor ranking of C+.

It’s time for Britons to take charge then. For those retiring 20-30 years from now, there’s still plenty of time to build a big nest egg for retirement.

Past performance isn’t a guarantee of future rewards, but the stock market has proven a reliable way to build long-term wealth for decades. Since the 1950s, share investing has delivered an average annual return of 9%.

It’s the sort of performance that can turn drip-fed investments into a formidable financial buffer. Let’s say you invest £500 a month in a tax-free Stocks and Shares ISA for 25 years. At the end of the period, you could have a portfolio worth £560,561, based on previous stock market performance.

A regular £39,239 income

If this was then invested in 7%-yielding dividend shares, you’d have an extra £39,239 in your hand every year. Dividends are never guaranteed, but a diversified portfolio of stocks can deliver a large and reliable second income.

So what shares should retirees consider for dividends? Aviva‘s (LSE:AV.) one of the best, in my view, which is why I’ve bought it for my own income portfolio.

Annual payouts here have risen for each of the last six years. The company’s undergone significant restructuring to support this, and is increasing its share of capital-light businesses to support dividends. By 2028, it hopes to generate 75% of earnings from capital-light businesses, generating formidable cash flows to fund future shareholder payouts.

The FTSE 100 firm faces competition risks across its operations. But I’m optimistic Aviva’s diverse mix of products, combined with its robust position in a growing sector, will deliver long-term passive income to supplement the State Pension.

The post Plan to fund your retirement with just the State Pension? Good luck with that! appeared first on The Twelfth Magpie.

The Cash ISA is the ideal home for short-term savings. But anybody looking to build long-term wealth is likely to get a far superior return from a Stocks and Shares ISA. Equities are more volatile in the short term, but history shows they easily outperform cash over time. The performance gap may surprise you.

Can my Cash ISA keep up with the stock market?

Research body Investing Insiders calculates that over the last decade, the average Cash ISA returned 4% a year. By contrast, the average Stocks and Shares ISA returned 9.5% a year, with dividends reinvested. Let’s see what that means in practice.

Ten years ago in 2016, the annual ISA contribution limit was £15,240. Let’s say somebody put half of that — £7,620 — in cash and the other half in shares. Here’s what they’d have today:

• Cash ISA value: £11,279
• Stocks and Shares ISA value: £18,884

Equities would have delivered an extra £7,605, but the eye-dropping difference comes over much longer periods. Let’s see what happens if they leave their money for 30 years:

• Cash ISA value: £24,715
• Stocks and Shares ISA value: £115,979

The stock market would have delivered a stunning £91,264 more. That’s even bigger than I expected. Which shows the long-term power of compound investing.

Right now, a popular way to build a Stocks and Shares ISA is to invest in a spread of FTSE 100 shares offering both dividend income and growth. 

What does this FTSE 100 stock have to offer?

One blue-chip stock that’s delivered both in spades is insurer and asset manager Aviva (LSE: AV). Over the last five years, its shares have climbed 55%. Typically, it’s yielded 6% a year on top, through regular dividends. That lifts the total return to around 90%, with dividends reinvested.

Aviva doesn’t just pay a high income, but one that rises regularly. Over the last five years, it’s increased dividends at an average rate of 13.35% a year. They’ve been racing ahead of inflation in real terms. Dividends aren’t guaranteed though.

Stock markets have been bumpy lately, and Aviva’s shares have dipped 9% over the last six months. This may be an opportunity to get in at a reduced price. The forward price-to-earnings ratio is a modest 12.1, which is reasonable value. As always with shares there are risks, as investors await events in Iran. Aviva also has to battle for business in a competitive market, and the UK economy is struggling.

Yet I believe this is a well-run company that should benefit as the population gets older and needs more pension and retirement products. I think it’s a compelling long-term opportunity for Stocks and Shares ISA investors to think about. And there are plenty more great value FTSE 100 stocks I’ll consider today.

The post How much is £7,620 saved in a Cash ISA a decade ago worth today? appeared first on The Twelfth Magpie.

Self-driving cars are often seen as a long-term threat to insurers. Fewer accidents could mean lower demand for motor cover. But recent industry commentary suggests the timeline — and impact — may be less clear-cut than many assume.

That raises an important question. Is the market focusing too much on a distant risk, and not enough on the earnings power available today?

A long road to autonomy

Concerns around self-driving cars are not new. But recent commentary suggests the reality may be less immediate than headlines imply.

At its FY25 results in March, management pushed back on the idea of rapid disruption. Industry estimates point to widespread adoption not arriving until the 2040s. Even then, replacing the global car fleet would take decades and require trillions in investment.

More importantly, the transition is unlikely to be smooth. Autonomous and human-driven vehicles are expected to coexist for years, especially in complex driving conditions.

For insurers, that matters. Rather than a sudden drop in demand, the shift is likely to be gradual — giving established players time to adapt.

Built to adapt, not be disrupted

If the transition to autonomous driving is gradual, the next question is who is best placed to navigate it.

Here, scale and data could prove decisive. The group has already built a significant advantage through its telematics offering, with billions of miles of driving data collected over time. In a world where risk becomes more complex rather than disappearing, that kind of insight becomes increasingly valuable.

There is also a track record of adapting to change. The shift towards electric vehicles, more sophisticated pricing models, and evolving customer behaviour has already reshaped the motor insurance market in recent years. Each time, established players have adjusted rather than been displaced.

Crucially, even in a more automated future, insurance demand is unlikely to vanish. Instead, it may evolve. A mix of personal and commercial cover, alongside new types of risk, could emerge — favouring insurers with the scale, data, and underwriting expertise to respond.

Risks

Of course, the longer-term risk should not be ignored. If autonomous technology does eventually scale, it could fundamentally reshape the insurance market.

Fewer accidents would mean fewer claims, but also a smaller pool of premiums. Some estimates suggest accident frequency could fall sharply over time, which would put pressure on overall industry revenues.

There is also a potential shift in where risk sits. As vehicles become more autonomous, liability may move away from the driver and towards manufacturers and software providers, changing the structure of the market.

The biggest challenge, however, is uncertainty. Adoption is expected to be gradual and uneven, shaped by regulation, cost, and consumer behaviour. That makes it difficult for investors to judge exactly when and how any disruption will feed through into earnings.

Despite that, I see the current concern as more of a long-term evolution than an immediate threat. With a forward dividend yield of around 6.6% and strong cash generation today, I still see the shares as one for long-term income-focused investors to consider.

The post Are Aviva shares being held back by an overblown AI threat? appeared first on The Twelfth Magpie.

The secret? A mix of saving cash and investing in the stock market. I’m not saying it’ll be easy. And positive returns are never, ever guaranteed. But with patience and a well crafted portfolio of dividend shares, an additional £3k in cash each month is a very realistic target.

Want to know how?

My plan

Let me start by telling you what I’m doing to target retirement wealth. I hold savings in a Cash ISA, and I have a shares portfolio spread across a Stocks and Shares ISA and a couple of Self-Invested Personal Pensions (SIPPs).

With these products, the interest, capital gains, and dividend income I receive is protected from HMRC. And so my cash and investment balances are larger, and I have 100% of my dividends available to reinvest. With the SIPP, I have the extra benefit of tax relief, too, giving me extra money to grow my portfolio.

But that’s just the starting point. How am I actually using these accounts to target retirement income? I’m roughly putting 80% of my extra cash each month in my investing ISA and SIPP, with the remaining 20% deposited in the Cash ISA.

Why this split?

My rationale is a simple one. I want to target the superior long-term returns of the stock market but without putting all of my money at risk. An 80/20 split is one I’m comfortable with.

But here’s something I do that a lot of unsuccessful investors fail to: I hold a diversified mix of 20-25 stocks, trusts, and funds. We’re talking about companies working in different industries and parts of the world, giving me access to various growth and income opportunities and spreading my risk still further.

Take this passive income share I’ve just bought: Aviva (LSE:AV.). Its one of the key holdings in my dividend portfolio alongside HSBC, Legal & General, and Coca-Cola HBC, to name just a few others I own.

I love Aviva for a couple of reasons. Its dividend yield consistently ranges between 5% and 6%, and for 2026 this sits at 6.5%. That’s more than double the FTSE 100 average of 3%.

But what makes it such a strong dividend payer? Its insurance premiums and asset management fees give it the cash flows to deliver large and growing dividends. Indeed, shareholder payouts have grown in 11 of the last 12 years.

Aviva faces significant competitive pressures across its product lines. However, a strong position in growing markets suggests the FTSE firm should keep delivering excellent returns.

Targeting that £3k monthly income

I’m confident the dividends Aviva pays me now will help me grow my ISA and SIPPs. When I retire, I’m hopeful it’ll give me a stream of cash to live on.

So how much money will I need for a £3,000 monthly income in retirement? Let’s say I can achieve a 9% annual return from my stocks and 2% on my cash holdings. Based on a £500 monthly investment split 80/20, I will have a total portfolio worth £483,353 in just under 26 years.

This could then make me £3k a month if invested in 7%-yielding dividend shares.

The post How much do you need in an ISA for a £3,000 monthly passive income? appeared first on The Twelfth Magpie.

But how long will it take? And which stocks should investors be considering?

Let’s crunch the numbers

The easiest way to generate £500 a month, or £6,000 a year, is with a portfolio of dividend-paying stocks. Rather than relying on a 3%-yielding FTSE 100 tracker, investors can instead build a custom-tailored portfolio of higher-yielding opportunities. For example, right now, Aviva (LSE:AV.) shares are paying out 6.25%.

At this level of yield, investors can start earning £6,000 a year passively with a nest egg worth roughly £96,000, versus the £200,000 index investors require.

That’s still a big number. But by investing just £50 a week and reinvesting any dividends paid along the way, this threshold could be reached in around 19 years. And that’s before counting any potential capital gains.

So is this a no-brainer for long-term investors?

Why Aviva stands out

Aviva’s one of the UK’s fully diversified insurance groups. Its operations span the life, health, and general insurance markets, as well as having a fast-growing wealth management division.

Under the leadership of Amanda Blanc, Aviva’s been on a bit of a tear, achieving impressive financial momentum with its operating profits climbing by 25% in 2025, beating its 2026 earnings target a year ahead of schedule.

Combining the expanding bottom line with similarly impressive free cash flow performance and a 17.5% return on equity (ROE), not only have dividends just been hiked by another 10%, but the company’s also launched a £350m share buyback programme.

Yet even better results could be just around the corner. In light of its stronger-than-anticipated results, management’s now updated its medium-term targets to reach an ROE of over 20% within the next three years while averaging an 11% compound annual growth rate in earnings per share between 2025 and 2028.

Obviously, growth targets aren’t guarantees. But if the group delivers on its ambitions, that’s a perfect recipe for even more dividend growth, accelerating progress towards hitting the £500 monthly passive income goal.

What could go wrong?

Despite all the tailwinds, Aviva isn’t without risks. Something that even the most bullish institutional investors have highlighted is the potential uncertainty surrounding the group’s Direct Line acquisition.

So far, the multi-billion-pound takeover appears to be going relatively smoothly, with integration making steady progress. But if that progress starts to slow due to unexpected delays, the integration costs could start to pile up, limiting management’s ability to hike dividends.

Beyond integration concerns, there’s also the question of insurance sensitivity. Taking over Direct Line has increased Aviva’s exposure to motor and home insurance – two markets that are notorious for claims inflation due to supply chain challenges and bad weather. And sadly, both are entirely out of management’s control.

That said, with sturdy-looking cash flows, exciting financial momentum, and a tasty-looking dividend yield, these risks may still be worth considering. And if the company continues to outperform, drip feeding £50 a week over the long run could deliver a genuinely lucrative reward.

The post How to make passive income in 2026 with only £50 a week appeared first on The Twelfth Magpie.

Let me reveal three top shares I think Stocks and Shares ISA holders should consider today: CRH (LSE:CRH), Aviva (LSE:AV.) and Primary Health Properties (LSE:PHP). I’ve put my money where my mouth is and bought them for my portfolio.

Here’s why they’re among my favourite UK stocks today.

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.

Growth hero

CRH has proved a reliable earnings grower even during tough times. City analysts expect this impressive run to continue — growth of 8% and 11% is predicted for 2026 and 2027 respectively.

The company supplies building materials across the globe, with the US its single largest market (60% of sales). It has significant growth levers to pull, including massive Stateside spending on transport and water infrastructure. Supply chain shake-ups, and the construction of new data centres and renewable energy projects also create major earnings opportunities.

CRH expects annual sales growth to average 7% and 9% between now and 2030. It’s also expecting adjusted EBITDA to leap to 22%-24% by the end of the period. I’m backing it to hit these targets, though difficulties in the US housing market may cause some near-term problems.

Too cheap to ignore?

At 6.6%, Aviva shares carry one of the FTSE 100‘s highest near-term dividend yields. Predictions of further dividend growth in 2027 drive the reading to 7.1% too.

I bought the financial services giant for it passive income qualities. The majority of its operations are capital light in nature. And with its insurance premiums and service fees driving a steady flow of cash, it’s able to return boatloads of capital to its shareholders.

But it isn’t all about dividends at Aviva. With ultra-low price-to-earnings growth (PEG) ratios, it has great appeal as a value share too. For this year and next, its PEG readings are 0.1 and 0.8 respectively. Any reading below 1 is considered bargain-basement territory.

Though its markets are highly competitive, I’m optimistic earnings and dividends will keep rising, driven by rising financial services demand.

8% dividend yield

Primary Health Properties is my favourite all-round dividend share, and last month I increased my holdings. For this year its dividend yield is 7.8%, rising to 8% for 2027. Both figures are more than double the FTSE 100 average of 3%.

These large payouts partly reflect real estate investment trust (REIT) rules, where at least 90% of annual rental profits must go out in dividends. However, it also reflects the company’s focus on the lucrative and ultra-defensive medical sector. With rental rolls guaranteed by government bodies too, and a large proportion also inflation linked, its income streams are rock solid.

Yearly dividends have grown every year since the mid-1990s. Primary Health’s share price could suffer if interest rates rise, hitting asset values. But it’s still one of the best UK shares out there, in my view.

The post 3 of the best UK growth, value and dividend shares to consider in an ISA! appeared first on The Twelfth Magpie.

According to EDF Energy, the average UK household currently pays around £137 a month under the latest Ofgem price cap. That works out at more than £1,600 a year — a meaningful expense for most households. So how big would an ISA need to be to cover that for life?

Crunching the numbers

To keep things simple, an investor is assumed to want to cover a £1,644 annual energy bill using income from an ISA invested in a broadly diversified portfolio.

A commonly used rule of thumb is that around 4% of a portfolio can be withdrawn each year without running it down too quickly over the long term. It’s not perfect, but it provides a useful starting point.

On that basis, an ISA would need to be worth £41,100.

Put another way, this isn’t about building a life-changing fortune. It’s about building a relatively modest pot that could potentially cover a very real and recurring household cost.

Of course, markets won’t move in straight lines and returns will vary year to year. But it does suggest the gap between having nothing and an income stream that covers a key bill may not be as wide as it first appears.

Index tracker

One simple way to approach this would be using a low-cost FTSE 100 ETF inside an ISA, such as the iShares Core FTSE 100 UCITS ETF, (LSE:ISF), which tracks the UK’s largest companies in a single, diversified investment.

At the time of writing, it offers a trailing 12-month yield of 2.9%. Based on that yield, an investor would need a significantly larger ISA pot to generate £1,644 a year in income.

But there is another route — picking individual dividend-paying stocks. This approach does require more effort and research, and it comes with less diversification. However, in return, it can offer the potential for a higher income stream than a broad market tracker.

Stock pick

Aviva (LSE:AV.) offers a forward dividend yield of 6.6%, which immediately puts it in the higher-income bracket of the FTSE 100. The key question for investors is whether that level of income is sustainable.

The good news is that the dividend is not being driven by a single, fragile source. Aviva has been steadily reshaping its business model towards more capital-light areas such as wealth, retirement, and fee-based insurance services.

That shift matters. It means the dividend is increasingly supported by recurring earnings rather than cyclical insurance profits, which should make it more resilient over time.

Recent performance also suggests momentum is building across the group, with management already delivering on medium-term targets ahead of schedule.

That said, risks remain. Insurance results can still be affected by claims inflation, while investment returns remain sensitive to bond markets and broader economic conditions.

Overall, I think the stock’s yield looks well supported by a more diversified and resilient earnings base. If management continues to execute at this pace, it could become exactly the kind of income-generating stock that helps an ISA cover rising costs like energy bills faster than many investors expect.

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