I don’t want to rely solely on the State Pension in retirement, so I’m keen to generate a passive income of my own. One way I do this is by investing in FTSE 100 shares, which offer some of the most generous dividends in the world.

At time of writing, the average yield across the FTSE 100 is 4.1%, which looks good to me. Especially since any share price growth when markets rise will be on top of that.

I’m investing for passive income

I will put my dividends to work in two ways. Initially, I will reinvest them back into my portfolio so that they compound and grow over time. Later, I will draw those dividends as income when I retire. By investing inside my annual Stocks and Shares ISA allowance, I can take that income tax free.

How much passive income I could generate will depend on factors such as how long I invest for, how much I pay in, and how well my shares perform. Let’s say I invest £3 a day. That’s around £90 a month, or £1,095 a year.

Let’s also say I was starting from scratch aged 25, increased my contribution by 3% a year, and generated a total average return of 7% a year. By 67, I would have a portfolio worth £400,809.

That’s not a bad return from investing £3 a day (and rising). If my portfolio of FTSE 100 shares was yielding 4.1% at that point, it would give me income of £16,433 a year. That’s way above my £5,000 target, which would be brilliant. Apart from one thing. I’m not 25.

If I started at 35 applying the same assumptions as above, I would have £179,854 by 67. That’s a much lower figure and underlines the importance of investing as early as possible. On the plus side, it would still generate income of £7,374 a year.

So if I waited until 45 instead, I would fall short of my target. With just 22 years to retirement, I would generate just £73,647 by the time my 67th birthday comes around. My income stream would fall to just £3,020 a year, assuming the same 4.1% yield.

Sooner I start buying shares, the better

I am actually 15 years from my anticipated retirement date. Luckily, I’m not starting from scratch, but if I was, I would need to invest £10.50 a day (£3,833 a year) to achieve my original passive income target of £5,000 in retirement.

Investing that much would give me a pot of £122,731 and income of around £5,032 a year, using all the same assumptions.

As these figures show, there is no time to lose in the battle to gain sufficient passive income for retirement. Now looks like a particularly good time to get stuck in, as there are loads of FTSE 100 dividend stocks available at dirt-cheap valuations in the current turmoil.

Plenty of them yield 6%, 7%, or 8% a year, or more. That’s a lot more than 4.1%. If I targeted higher-yielding stocks, I could potentially generate much more than £5,000 a year, but with a bit more risk.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m no longer 40 years old but if I was and had no retirement savings, I’d follow the same strategy as I do in my 50s, and invest in FTSE 100 stocks.

Although the first thing I would do is kick myself, for leaving it so long to take investing seriously. That’s because I have learned that the longer my money sits in the market, the more time it has to compound in value. That is particularly important when investing in the FTSE 100, as it is packed full of top dividend stocks paying mighty yields.

I’d pile into FTSE 100 stocks

Some of my favourite companies on the index haven’t delivered much share price growth over the last five years or so. Many have fallen sharply over the last 12 months. That doesn’t put me off, because they now look dirt cheap and their yields are huge. Many of my favourite FTSE 100 stocks yield between 5% and 8%. Some pay even more than that.

If I was 40, I would reinvest all my dividends straight back into my portfolio, again, exactly as I do today. My reinvested dividends would pick up more stock, which would pay more dividends, which I would reinvest to buy yet more stock.

This is a virtuous circle and even I started from scratch at 40, I would still expect to build a decent pot of money by the time I reached state pension age.

Let’s say my FTSE 100 shares delivered a total return of 7% a year, which is roughly the long-term average across the index. If I invested a lump sum of £10,000, that would grow to £62,139 by age 67 years. That’s a pretty decent return.

If I followed that up by investing £300 a month, which is £3,600 a year, I would end up with a thumping £349,050. Again, this assumes 7% a year growth.

I’d buy cheap value stocks

Here’s another thing I would do. I would increase the amount I invested each year, to keep up with inflation. Let’s say I increased that £300 monthly contribution by 3% a year. By the time I hit 67, I would have £446,624 in total. 

Of this, £290,069 would have been pure profit from compound growth. That’s an impressive two-thirds of my total portfolio.

I think now is a tempting time to start buying FTSE 100 stocks because the index is packed full of bargains. I can scarcely believe my eyes when I see dividend aristocrat Legal & General Group trading at 6.87 times earnings and yielding 7.94%. Or housebuilder Taylor Wimpey, whose valuation has tumbled to just 5.28 times earnings, while it yields 8.91% a year.

Mining giant Rio Tinto is currently valued at just 4.09 times earnings and yields a staggering 12.09%.

Of course, dividends are not guaranteed, and share prices can always fall. No stock is ever totally safe. That’s why I would invest in a balanced spread of FTSE 100 stocks, to spread my risk. I would also pay in as much as I could afford today, to ensure a comfortable retirement tomorrow. That would apply whether I was 30, 40, 50, or older.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As I plan to stop working in the next 10-15 years, I’m keen to accelerate my efforts to generate passive income in retirement.

So far, I have mostly done this by investing in UK dividend shares, but as house prices wobble I’m wondering whether buy-to-let will offer an opportunity again.

I have shunned buy-to-let for years. As well as the sheer effort of buying and maintaining a property, and finding and replacing tenants, it’s expensive. Investors have to pay a 3% stamp duty surcharge, while higher rate tax relief on mortgage interest has been scrapped.

Full speed for passive income

Another disadvantage is that all rental income is subject to income tax, while any house price growth will attract capital gains tax. By contrast, if I invest in top FTSE 100 companies inside a Stocks and Shares ISA, all my income and capital gains are free of tax for life.

That makes life simpler as well, because I do not have to mention them on my self-assessment tax return. Buy-to-let involves a lot more paperwork. But I’ll admit there’s excitement in buying bricks and mortar, and over the long term UK property has been a hugely rewarding investment.

I wouldn’t buy today though because property prices have not actually fallen so far, while share prices have. The FTSE 100 is down 8.2% this year, and trades at 6,890. That is a better performance than most global markets, but it still leaves the index packed with top blue-chip shares trading at low prices.

These bargains are available right here, right now. If I wanted property market exposure, I could buy housebuilder Barratt Developments. It now trades at an astonishingly low 4.18 times earnings, while paying passive income 10.38% a year. There aren’t many buy-to-lets that would give me a double-digit yield.

Given the ease of buying shares, this looks a much more tempting option. I could open my investment platform and complete the trade in less than a minute. By comparison, choosing a property would take hours trawling Rightmove, and between three to five months to complete.

Naturally, there are risks to buying shares. The stock market could have further to fall, given current economic problems. Customers are being squeezed, so are profits. Borrowing costs are rising. Things are likely to get worse before they get better.

I favour UK shares over buy-to-let

Yet I can reduce some of the dangers by investing in a spread of top UK dividend paying shares. I can further spread my risk by investing in different sectors, not just housebuilders. I certainly couldn’t afford to buy a spread of buy-to-let properties.

Also, I don’t have to borrow money to buy UK shares, as I would with a property. I just purchase them (in seconds) whenever I have cash to spare. There’s no leveraging involved, which further reduces risks.

My position could shift if we see a major house price crash, but that will take several years to play out. I reckon it makes more sense to buy shares today, and reinvest those dividends for growth over the next 10-15 years. Then when I finally retire, I can draw my dividends as passive income.

That certainly looks like a better approach than becoming an amateur landlord, although every investor is different.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I plan to fund my retirement by generating passive income from London Stock Exchange shares, on top of my State Pension. The more I invest today, the more income my portfolio should generate when I finally stop working.

I invest regular monthly sums in top UK dividend stocks, mostly plucked from the FTSE 100. As I’m still working, I reinvest all the payouts I receive straight back into my portfolio. That way I pick up more stock, and earn still more dividends.

The big question I’m facing now is how much I need to invest each month to generate enough income to enjoy my final years. In some respects, the answer is easy: as much as I can afford.

I’m building a passive income from shares

That’s what I try to do, but I’d also like to have a clearer idea of how my money will grow. Let’s say I invested the equivalent of £3 a day, or £1,095 a year. 

Now let’s assume my portfolio grew in line with the long-term total return on the FTSE 100 over time, which is around 7% a year, with dividends reinvested.

How much I have at retirement will depend on my investment timeframe. So if I was 40 years from retirement, I would build up a pot of £233,902.

My next assumption is that I draw 4% of my portfolio each year as income. This is known as the ‘safe withdrawal rate’, which suggests that if I draw that percentage of my investments each year as income, my pot will never run dry.

This would generate income of £9,356 a year, which works out at £780 a month, or £26 a day. I reckon that’s a pretty good return from just £3 a day.

Investing small, regular sums to generate a passive income in later life is easiest when young. But I’ve got a confession. I’m actually just 15 years from retirement. Investing £3 a day wouldn’t be enough for me to build anywhere near £780 monthly passive income.

FTSE stocks need time to grow

Unless I raise my game, my portfolio would be worth just £29,442 by the time I retire, if I stick to investing £3 a month. Drawing 4% of that as income each year would give me just annual income of £1,178 or £98 a month, which is nowhere near enough. Luckily for me, I started investing in shares in my early 30s (although I wish I’d started earlier).

If I was investing from a standing start at my age, I’d have to go flat out, and invest much, much larger sums. If I invested £30 a day (that’s £930 a month), I would have £294,424 by 2037, assuming the same total average annual return of 7% (which I know, of course, isn’t guaranteed).

That would pay off, though. It would give me income of £11,778 a year or £981 a month. Finding that much spare money each money isn’t easy, though, and the moral of the story is clear. The best way to build a decent passive income from investing is to start as early as possible, and stick with it.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 shares pay an attractive dividend yield of 4.12% today, which is better than almost any savings account. Yet that income is only the start. Over time, it will grow and grow.

The big attraction of buying FTSE 100 shares is not just that they give me a good yield today, but I should get an even bigger one tomorrow. I reinvest all my dividends for growth, which means I am buying more company stock which will soon generate dividends of their own. The number of shares I own will compound over time, as will the passive income they generate.

FTSE 100 shares are great for income

Another attraction is that FTSE 100 companies aim to increase their dividends year after year, as profits rise. Investors expect this, and vote with their feet if management is unable to increase shareholder payouts regularly.

So while my shares are compounding in number, the dividends I receive are compounding in value, too. Soon I should be getting a much higher yield, based on the original sum I invested. If the share price rises as well, then it’s win-win-win.

Naturally, this virtuous cycle is not guaranteed — nothing is, when investing in shares. Dividends can be scrapped or suspended at any time. Share prices can crash or go nowhere for years. In extreme scenarios, a company can go out of business.

Nobody ever said that investing is a one-way bet. Or if they did, they lied. That’s why I hedge my bets, by putting together a balanced blend of FTSE 100 stocks. The winners will hopefully more than make up for any losers. I also invest with a lengthy timeframe, say, 20 years or more. That gives me time to bounce back from any share price crash or period of underperformance.

I further try to swing the odds in my favour by investing in strong, steady companies with healthy balance sheets, loyal customers, attractive dividend policies and a defensive ‘moat’ against existing rivals and new entrants.

There’s value on the index

Another thing I like to do is buy FTSE 100 shares when they are dirt-cheap, as I believe they are today. There are a host of companies on the index trading at less than 10 times earnings, where 15 is traditionally seen as fair value.

This reflects the fact that investors are nervous right now as the global economy stands on the brink of recession, and profits are under pressure. Effectively, markets are pricing in tomorrow’s troubles, which encourages me to carry on buying today.

The sooner I buy FTSE 100 shares, the sooner I start receiving their dividends, and benefit from the virtual circle I have described above. That’s why I’m still buying shares now, even though I’m as worried about the state of the world as the next person.

I’m building my portfolio of FTSE 100 shares to generate income in retirement. Already, I can beat that 4.12% average yield by plucking out individual companies that yield 8%, 9%, 10% or more. If I choose well and hold for the long term, those yields will rise even more dramatically.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This week’s meltdown has put yet another nail in the coffin of buy-to-let, which now looks like a costly way of generating passive income in retirement. I have favoured shares for some time, and this only confirms my view.

Buy-to-let was once a glorious investment, as property prices and rental income rolled ever higher. It has slowly been destroyed by higher taxes, reduced allowances, tougher regulations, and now rising interest rates.

I’m buying stocks for passive income

Stock markets have also taken a beating this year, but they still look like a far better way of building a steady stream of passive income to me.

A portfolio of shares seems much easier to manage than a buy-to-let property. I can buy and sell shares in seconds, take all my returns free of tax inside a Stocks and Shares ISA, then basically ignore them, if I choose. By contrast, buying property takes months, has high upfront and ongoing costs, and involves a lot of bother in finding tenants, completing tax returns, and paying tax to HMRC.

I wouldn’t buy a property right now even if I could get a mortgage, but I am happy to go hunting for bargain UK shares. The FTSE 100 has fallen this year, by 8.73%. That means I can buy top companies on the index at low prices.

Barclays now trades at just four times earnings and yields 3.97%. Tobacco maker Imperial Brands Group trades at 7.6 times earnings and yields 7.37%. Mining giant Rio Tinto is valued at just four times earnings, and its yield is a staggering 15.08%.

The FTSE 100 can even give me exposure to the property market through a housebuilder such as Barratt Developments. It trades at 4.5 times earnings and would give me a passive income of 9.95% a year. 

Tax-free returns inside a Stocks and Shares ISA

Of course, buy-to-let could bounce back. If house prices fall sharply, there could be some real bargains around. Mortgage rates may only see a temporary spike. Good property is still in short supply, and that drives tenant demand.

Shares can be risky. Global markets are in meltdown right now. Dividends can be cut, at any time. Profits could fall, and share prices follow. 

Barratt, as a house builder, is exposed to a house price crash. Its share price is down 11.51% in the last week alone. Over five years, it has fallen 38.93%. If the Bank of England hikes interest rates to 6% as many predict, demand for new builds will fall because buyers will no longer be able to afford them.

Yet I think UK shares are a much better way to build the passive income I’m after. My strategy would be to buy them at today’s dirt-cheap prices, and hold them for years and years.

I will build a balanced blend of a dozen FTSE 100 stocks or so, to spread my risk. When I retire, the passive income they pay will underpin my pensions. It all seems a lot more straightforward than buy-to-let.

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.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My position is simple. I am building a portfolio of FTSE 100 stocks to generate a passive income for my retirement. Today’s stock market volatility looks like a great time to buy more of them.

This year has been bumpy for global stock markets, with far more downs than ups, especially in the US. The S&P 500 has crashed into bear market territory, falling 23.70% year to date.

I’m buying passive income stocks

The FTSE 100 has been relatively resilient, falling 6.87%, a fraction of that collapse. Half of that dip has come in the last few days, following Chancellor Kwasi Kwarteng’s misfiring mini-budget. While I’m worried about the state of the nation’s finances right now, I’m not worried about buying UK passive income stocks. In fact, I think this is a great opportunity to pick up more of them.

The FTSE 100 is packed with solid, dividend-paying companies. As inflation rockets, these have swung back into favour. A steady stream of shareholder payouts gives my portfolio partial protection against inflation. Today, the average yield across the FTSE 100 is 4.19%. That’s far better than cash, with any share price growth on top.

I am keen to buy house builder Persimmon, which yields a dizzying 19.47%, and Lloyds Banking Group, which yields 4.7%. After I take the plunge, I will re-invest their dividends straight back into my portfolio, to generate growth. When I retire, I will draw them as passive income, to top up my pensions.

Passive income shares look good value with the FTSE 100 trading at just 13.48 times earnings. Persimmon is even cheaper, trading at 4.96 times earnings, and Lloyds at 5.57. 

Another favourite stock of mine, Legal & General Group, currently yields 8.54% and is valued at just 6.83 times earnings. All three stocks have risks, and their shares have underperformed for years. Yet the reward should outweigh those risks, I believe.

The big risk with buying today is that this crisis will intensify, and the FTSE 100 could fall further. That won’t stop me investing for two reasons. First, equities can always fall, at any time. Just as they can rise at any time. That’s what stock markets do. If that stopped me, I’d never buy.

I’ll buy and I’ll hold FTSE 100 stocks

The second reason that I will still buy passive income shares today is that I plan to hold them for the long term. I’m talking 20 or 30 years, supposing I live that long. That timescale gives the index plenty of time to recover. If it does dip in the short run, hopefully I will have some cash to share, and can buy more stocks.

Dividends cannot be depended on. They can be cut at any time – Persimmon worries me on that front. I get round that by building a balanced portfolio of at least a dozen shares, with different risk profiles, and different yields. That should help ensure a smoother passive income when I retire. With luck, today’s troubles will be long forgotten when I finally stop working and draw it. But I’ll still benefit from today’s lower entry price.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The State Pension isn’t enough to secure a fun-packed retirement, and I’ll supplement mine by building a passive income from shares.

My chosen way of doing this is to invest in dividend-paying FTSE 100 stocks, as they offer some of the most generous shareholder payouts in the world. Today, the index yields a steady income of 3.93% a year. That should rise over time, as companies listed on the index look to increase their dividends as profits rise.

This is how I’m building passive income

Some FTSE 100 stocks would give me a far higher passive income than that. Mining giant Anglo American currently yields 9.07% a year, while insurer Aviva offers income of 8.73% and Barratt Developments yields 8.81%. All three are dividend aristocrats, and I haven’t even got past the Bs.

The FTSE 100 is fertile ground for investors like me, who want the highest possible passive income in retirement.

These yields are not guaranteed though. As we saw in the financial crisis and again during the Covid pandemic, companies can cut them in times of trouble. Yet management will only do that in extremis, because investors don’t like it.

Let’s say I invested in a spread of FTSE 100 stocks, so I bagged that average yield of 3.93% (even though I reckon I could do better).

Now assume I wanted to generate £1,000 a month of passive income, which adds up to £12,000 a year. To achieve that, I would need to build an investment portfolio of £305,344. So that’s the capital target I have to aim for.

Of course, if I drew my passive income from a pool of FTSE 100 offering higher yields, I could generate the same passive income from a smaller portfolio. If my stock picks yielded on average 6% a year, I could generate £1,000 a month from a portfolio of just £200,000.

I think that target is achievable, even for newbie investors. Take someone who is 35 today, and plans to retire at 68. They still have 33 years to build the portfolio they need.

Tax-free inside a Stocks and Shares ISA

If they invested £200 a month in a Stocks and Shares ISA, and their investments grew by 7% a year, on average, they would have £305,421 by age 68. That’s enough to generate a decent passive income, entirely free of tax.

This highlights the importance of investing as early as possible. The first £1 invested is the most important, because it has longest to compound and grow. Naturally, there is no guarantee that my portfolio would grow at an average rate of 7% a year, although that is roughly what the FTSE 100 has delivered over the decades.

On the other hand, it could grow at an even faster rate, giving me an even larger pool of money to generate my passive income. Even if I don’t hit that target, I will still enjoy a more comfortable retirement then if I relied solely on the State Pension.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m investing for the future in a Stocks and Shares ISA and that isn’t going to change despite the latest interest rate hike.

The Bank of England has hiked the bank rate seven times in a row since December, and it now stands at 2.25%. That is the highest level since November 2008, which means savers can finally get a halfway decent return from a Cash ISA.

I’m pleased for them. Savers have been poorly treated for far too long, and need a break. Yet I’m not putting any money in a Cash ISA myself. I still believe the Stocks and Shares ISA merits my full love and attention.

I’ve just checked out the Moneyfacts best buy tables, and the best rate I can get from an easy access Cash ISA is just 1.80% a year. If I lock my money away in a one-year bond, I can get 3.05% but cannot access my cash in that time.

I’m standing by my Stocks and Shares ISA

This is a huge improvement on just 12 months ago. In September last year, the best easy access Cash ISA paid just 0.60%, while the top one-year fixed rate offered 0.90%. Finally, shares have a little competition from cash.

But we are a long way from cash being king again. Inflation is currently a staggering 9.9%, and no savings account pays anywhere near that. Which means the value of money held in cash is still shrinking fast in real terms.

I can make my money work much harder by investing in a portfolio of FTSE 100 blue-chips through a Stocks and Shares ISA. This will give me a much better chance of protecting the purchasing power of my savings.

FTSE 100 shares currently yield 3.93% on average, which beats the interest rate on even the best cash ISA. This income is not as safe as savings interest, as companies can cut their dividends at any time. Yet over the longer run, they are more likely to increase their shareholder payouts. This gives me access to a rising income over time.

Also, plenty of FTSE 100 dividend aristocrats yield far more than 3.93%. Legal & General Group yields 7.13%, Phoenix Group Holdings yields 8.11%, and Rio Tinto yields an incredible 11.96%. This goes a long way towards combating inflation. High yields can be a sign of a company in trouble, although these three seem fairly solid to me.

Cash is a short-term king

The other attraction of investing in shares is that I should also enjoy some share price growth when the stock market rises. I accept that this is far from guaranteed. The FTSE 100 has fallen 4.96% this year, which is a negative return even after the yield has been added.

So I would have done better in cash. Yet I would never judge my returns from a Stocks and Shares ISA over such a short period. I’m investing for at least 25 years, and over such a lengthy period I think my portfolio of shares should compound and grow at a much faster rate than cash.

Naturally, there will be ups and downs along the way, but I am ready for those. Cash can work for short-term savings, but for my long-term retirement funds, I will continue to invest regular sums in my Stocks and Shares ISA. Even if base rates rise again in November.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More people are working beyond 65 than ever before, but I would like to have the opportunity to retire early if I can. The only way I can do that is to save enough money for a sustainable retirement income, and I reckon FTSE 100 shares are a great way to do that.

In recent years, US tech stocks have grabbed the limelight. That is now going into reverse as investors wake up to the charms of the FTSE 100, as UK blue-chips offer a solid, steady income stream from dividends. That’s what I need to retire early.

Despite this year’s volatility, the index has escaped the stock market crash. It trades at a similar level to the start of the year. By contrast, the S&P 500 has fallen more than 20% year-to-date, and is in a bear market.

I’d retire early on these stocks

Yet a whole heap of FTSE 100 stocks are trading at cut-price valuations, while also paying hugely generous dividends. Better still, many of these dividends are comfortably covered by earnings, which makes them relatively secure.

One stock that jumps right out at me is insurer Aviva. It generates solid cash flows, year after year, from selling pensions, protection and general insurance. Yet it habitually trades at a low valuation. Right now, I can buy it at just 7.8 times earnings. Better still, this will give me a staggering income of 8.7% a year, covered 1.5 times by earnings.

Dividend income is never guaranteed. Aviva suspended its payout during the pandemic, although quickly restored it. Management knows how important the dividend is to shareholders, and will be reluctant to cut again except in extreme circumstances. The £13bn group recently reported “continuing momentum” in the six months to 30 June. Interim operating profits rose 14% to £829m. It looks steady enough for me.

The Aviva share price has not moved much over the years, although it has jumped 13% over the last 12 months. Over five years, it’s down 9%. I’m not buying Aviva shares for growth though. I’m sure that will come over time, but income is my main goal and this stock offers that in spades.

Oil giant BP is my second income pick. It is slightly more expensive than Aviva, trading at 13.7 times earnings. That is hardly surprising given that its share price has rocketed 47.75% over the last year. Five-year performance is less impressive at just 1% though.

I’m buying FTSE 100 dividend income shares

BP now faces the huge challenge of transitioning from fossil fuels to renewables. Like Shell, it has only made tentative steps so far. The energy crisis has shown that the world still needs plentiful oil and gas during this year’s energy crisis, but management cannot rely on that continuing forever.

While acknowledging the risks, I’m backing BP to make the leap. Frankly, management has no choice. But this doesn’t have to happen overnight. The income looks rock solid at the moment. BP’s forecast yield of 4.4% is covered a stunning six times by earnings. Usually, two times is seen as comfortable.

I’m now scraping together some cash to go shopping for shares, and when I have it, these two will be at the top of my list. My plans to retire early depend on them.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.