How much do you need in a Stocks and Shares ISA to target a £30k annual income?

A Stocks and Shares ISA is one of the most efficient ways to build long-term wealth. It doesn’t offer upfront tax relief like a Self-Invested Personal Pension (SIPP), but all capital growth and dividends are sheltered from taxes, which is a huge benefit.

You can invest as much or as little as you like, up to £20,000 a year. So what kind of pot is needed to generate a pretty meaty retirement income of, say, £30,000 a year?

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.

Crunching ISA numbers

A common rule of thumb is the 4% withdrawal rule. If somebody withdraws that percentage of their portfolio each year, their pot should never run dry.

Under the rule, someone drawing £30,000 annually from an ISA would need around £750,000 in the pot. It’s a big number, no question, but not necessarily out of reach. Over 25 years, investing just under £800 a month at an average return of 8% could get there.

Of course, targeting 8% a year means picking the right shares. That’s where individual stocks come into play. And one that I’ve had my eye on recently is Bunzl (LSE: BNZL).

I’m tempted by Bunzl shares

Bunzl provides the sort of boring but essential kit that keeps the world running: paper towels, gloves, cleaning supplies, packaging, and so on. It grows by acquiring smaller rivals across the globe. Last year, it snapped up 13 businesses for £883m.

On 16 April, it issued a rare profit warning after a weak first quarter, due to rising costs and sluggish food and grocery demand in North America, its biggest market. Europe and the UK were under pressure too. Shares plunged 23% on the day and are down 30% over 12 months. They’re back at 2020 levels, which could present an attractive buying opportunity.

On 24 June, management said the first half had met expectations and predicted an improvement in the second half, thanks to cost savings and restructuring. Revenue was up 4% at constant exchange rates, again, driven by acquisitions.

Reliable dividends

When it comes to income, Bunzl keeps delivering for shareholders. It hiked the dividend 8.2% in 2024 to 73.9p, marking another year in a remarkable streak of increases stretching over 30 years. Over the past 15 years, dividend growth has averaged 8.56% a year. That’s stunning consistency. Today’s yield is 3.28%, helped by the share price slide.

Valuation-wise, the stock trades at a price-to-earnings ratio of just 11.5. The US economy remains a risk, as do potential tariffs, and the recovery may take time. As with any stock, investors need to give it at least five years, but the real benefits come from compound growth over decades.

I believe the best route to a £750,000 ISA is through a diversified portfolio of around 15 or 20 quality FTSE shares. One or two will disappoint. Others, with luck and time, will shine. And with patience, a £30,000 tax-free income may be well within reach. Even if an investor misses that target, they’ll still likely get a far higher second income than if they had never invested at all.

The post How much do you need in a Stocks and Shares ISA to target a £30k annual income? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc. 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.