How Much Do You Need in an ISA or SIPP to Earn £350 a Week?

A closer look at how dividend-paying FTSE 100 stocks could help you generate a reliable second income in retirement.

Planning for a Second Income in Retirement

With the cost of living rising and traditional pensions under pressure, many Britons are turning to ISAs and SIPPs to build a reliable second income. But how much do you really need to stash away to achieve £350 a week — or roughly £18,200 annually — in extra income?

Let’s explore how a diversified portfolio, particularly one including high-yield FTSE 100 shares, could help you reach that target.

Dividend Income Strategy

Dividend-paying stocks are a popular way to create passive income. Investing in companies that regularly return profits to shareholders offers a dependable cash flow, especially in retirement.

One standout example is M&G, a FTSE 100 stock known for its generous dividend yield.

• Current dividend yield: Around 9.5%
• Payout track record: Consistent, with stable performance
• Required capital for £18,200 annual income: Approximately £191,578

This assumes a constant yield with no tax and full reinvestment in a tax-efficient wrapper like an ISA or SIPP.

Why M&G Stands Out

M&G is particularly attractive for income investors due to its strong dividend history and position in the asset management and insurance space. Despite global market volatility, the firm has managed to preserve investor payouts and offer appealing income growth potential.

However, no stock is without risk. Dividends are not guaranteed, and capital values can fluctuate. That’s why experts recommend diversification across several high-yielding shares to reduce risk and maintain stable income.

Using ISAs and SIPPs Effectively

Both ISAs and SIPPs offer tax advantages that can boost your income:

• ISA benefits: Tax-free income and gains, no need to declare on tax returns
• SIPP benefits: Tax relief on contributions, income tax may apply on withdrawals, but ideal for long-term retirement savings

For younger investors, focusing on capital growth first and then shifting to dividend-generating assets closer to retirement is a sound strategy.

What to Watch Out For

• Dividend traps: Yields that look too good to be true often are
• Volatile sectors: High yields in some sectors (like energy or real estate) can be cyclical
• Inflation impact: Eroding real value of income if dividends don’t grow

Is £350 a Week Realistic?

Yes — but it requires careful planning. Based on a 9.5% yield, you’d need about £190,000 invested. At a more conservative 5% yield, the figure rises to £364,000. The earlier you start and the more consistent you are, the more attainable it becomes.

Key Takeaways

• A second income of £350/week requires a well-structured dividend portfolio.
• High-yield FTSE 100 stocks like M&G can play a key role, but diversification is essential.
• ISAs and SIPPs are powerful tax-efficient tools to build long-term wealth.
• Investors should weigh risks, especially around dividend sustainability and sector exposure.

Final Thought: Plan Now for a Comfortable Retirement

The sooner you begin planning your second income strategy, the better your chances of enjoying financial freedom in retirement. Consulting a financial advisor and doing regular portfolio reviews will help ensure your plan stays on track.

Invest smart, diversify well, and make full use of your tax-free allowances to hit your income goals.

Sources: (MotleyFool.com, Harvey Jones)