How big should your Stocks and Shares ISA be to generate £250 a week when you retire?

The Stocks and Shares ISA is brilliant way to build a reliable income stream for later life. I’m using the tax-free wrapper ISA to buy a spread of FTSE 100 dividend-paying shares with the hope of turning their regular dividends into a meaningful second income when I finally stop working. The older I get, the more important my ISA feels.

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.

Working out the income target

A weekly income of Â£250 works out at roughly Â£13,000 a year. To see how large an ISA might need to be, I start with dividend yield. Thatâs the amount of income paid out each year as a percentage of the share price. It varies wildly from stock to stock, and nothing is guaranteed, but it gives a useful starting figure.

The FTSE 100 offers an average yield of around 3.25% today. To get Â£250 a week from that yield, an investor would need Â£400,000. Personally, I think we can do better. With careful stock selection, it’s possible to generate a much higher average yield of 5%, which would shrink that target to Â£260,000 a year. If an investor really went for it and yielded 6%, they only need around Â£217,000.

FTSE 100 dividend star

Investment markets move in cycles. Some sectors fall out of favour, only to re-emerge stronger later on. Real estate investment trusts (REITs) like LondonMetric Property (LSE: LMP) have been through a tough spell lately. Sluggish economic growth made things harder for tenants, while working from home clipped demand for offices. The cost-of-living squeeze and e-commerce shift dented shopping centre footfall.

That backdrop helps explain why LondonMetric, which specialises in logistics centres, retail parks, and leisure, has struggled lately. The share price has risen just 2% over 12 months and is still 16% lower than five years ago. Even so, there are positive signs. Interest rates are expected to fall as inflation eases, and that could support both asset values and profitability across the sector.

The companyâs half-year update, published on 7 October, was encouraging. LondonMetric expects net rental income to rise 14% to Â£219m. Occupancy remains high at 98%, lease lengths average 17 years, and rent collection sits at 99.4%. The board increased the dividend again, marking its eleventh straight year of growth.

Building for the future

As a REIT, it must distribute most of its rental profits as dividends. The current trailing yield of 6.2% is generous, although the price-to-earnings ratio of 18.5 suggests the shares arenât a screaming bargain. For investors who understand the model, LondonMetric could be one to consider buying, but only after investigating the risks I’ve mentioned above.

However, investors just starting out should consider household names like Aviva or Lloyds Banking Group, while they get the hang of dividend investing.

Investing is a long game, and reliable wealth comes from steady contributions, sensible diversification, and time in the market. With that combination, a Stocks and Shares ISA capable of generating Â£250 a week becomes far more achievable. And when retirement arrives, it’s potentially life changing.

The post How big should your Stocks and Shares ISA be to generate Â£250 a week when you retire? appeared first on The Motley Fool UK.

Should you invest Â£1,000 in LondonMetric Property Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if LondonMetric Property Plc made the list?

See The Six Stocks

More reading

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