When it comes to planning for passive income in retirement, the best time to start always seems to be yesterday, doesn’t it?
Well, it’s never too late, but it can be hard getting moving and deciding what to do. I mean, there are so many alternatives out there. Most are fanciful, but two do seem to get the most attention.
One is investing in property to generate passive income from rent. The other is to buy shares in UK companies, especially ones paying dividends. I’ve done both, and I’d choose shares every time now.
I’m not knocking property. I own a rental house, and it’s bringing in a reasonable income. But over the years, it’s been erratic. I’ve had voids, and bad tenants. I had one who disappeared owing me months of rent, and took everything that was removable, including the light bulbs.
Scary shares
People often think of bricks and mortar as solid and reliable, but see shares as flighty things that could be here today and gone tomorrow. And some shares can be like that.
Fancy investing in some high-flying digital asset development company, whatever that is (which, incidentally, isn’t making any profit just yet, but is sure to strike it rich)? Well, good luck to investors, as they’d need it. My £5 per day wouldn’t go anywhere near it.
But while these high-risk ‘jam tomorrow’ shares exist, there are many solid ones generating cash today. If I buy Tesco shares, I don’t own a bit of paper, or a wiggly line on a graph. I own an actual portion of the UK’s biggest supermarket chain. I can visit and think “part of this is mine“.
So, £5 per day, what might that get me?
Stocks and Shares ISA
Well, it’s £1,825 per year that I could put into shares. And a Stocks and Shares ISA is really quite straightforward to set up and operate.
I don’t think targeting an average return of 8% per year from shares is too unreasonable. Not every year will be good. Some years will even lose me money.
But by taking a long-term investing approach, the more likely I am to achieve my goals. At 8% per year, with dividends reinvested, my £5 per day could turn into nearly half a million pounds in 40 years.
Now, starting again today, I wouldn’t have 40 years. But it’s realistic for young people. And older people can do a few things to boost their returns. One is just to invest more.
Realistic goals
Another is to raise the amount we invest at intervals. Maybe by 5% per year. Perhaps every time we get a pay rise (remember those?) Or stash away any windfalls.
For older people, it might be too late to build up half a million by retirement. But by steady investing, with realistic goals, I’m convinced we can create a nice bit of passive income in retirement.
And it’s got to be better than some of the nonsense out there. I mean, some people sell stock photos through photo agencies. I have a few thousand of my own photos uploaded with them. My total income so far? £6. At least I could buy two Tesco shares with that.