Around a quarter of people in the UK have no savings. And some aged 50 or more might be a bit worried by that. But I say it’s never too late to start investing for passive income to help fund our retirement.
According to the Office for National Statistics, a 50-year-old female today has an average life expectancy of 87 years. And she has a one in four chance of living to 95. The figures for males are a bit lower. But I doubt my wife will complain if I can secure a bit of passive income for her for after I’m gone.
It might be harder starting to save and invest at age 50. But whatever the State Pension retirement age, I expect many of us today should easily be able to keep working and investing until we reach 70.
That gives us 20 years to build up a retirement nest egg. And I think a surprising amount can be possible over that time scale. How would I go about it? I’d invest in UK high dividend shares.
Better than savings
I like dividend shares even at the best of times. Who wants a paltry couple of percent in interest from a savings account when there are shares out there paying 10% in dividends?
Now, not many shares offer dividend yields in double digits. And those that do are likely to be at the risker end of the scale.
But when share prices are down, as many of them are now, dividend yields can be boosted. If a company is performing well and can still hand out the cash, the same payment will provide a bigger percentage return when the underlying share price is lower.
Big dividends
I wouldn’t bank on achieving 10%. But is 8% per year possible? At the moment, we’re looking at a forecast dividend yield of close to 15% from housebuilder Persimmon. It includes special payments, and won’t be that high every year. But it looks good to me.
Insurer Aviva is on a forecast 7.5%. And asset managers M&G and abrdn are both on predicted yields of 9.9%. Those are huge.
8% compounded?
Suppose we can achieve an average return of 8% per year from dividend shares. Then, what if we reinvest the dividends every year? How much might 20 years of investing achieve? It obviously depends on how much we can invest.
If an investor can afford £500 per month on those conditions, they could end up with £285,000 stashed away by age 70 (assuming they start at 50). And 8% in dividends from that would then provide an annual passive income of £22,800 per year.
Pension top-up
I wouldn’t mind that in addition to whatever pensions I had.
Now, there’s plenty of “if” and “suppose” here. Dividends aren’t guaranteed and can be cut, so that’s a risk. And this is not an investment forecast. It’s just a few thoughts that help keep me focused on my goals.
My main goal is to try to generate passive income in my retirement. And I can’t see a strategy I like better than investing in dividend shares.