How much do you need in an ISA for a £2,027 monthly passive income in 2027?
My investment resolution for 2026 is to build the maximum passive income I can inside a Stocks and Shares ISA. Thinking about it, that’s the same resolution as last year. So why is that so important to me?
Generating a second income on top of my State Pension and personal pensions is the best way I know to secure a comfortable retirement. It’s that simple. But it takes time. It can’t be done in a year.
Some investors will be starting from scratch. Others will be well under way. But how much will they need to generate a £2,027 monthly passive income this time next year?
FTSE 100 dividend stocks
The first thing to say is that they won’t do it in a single year. That £2,027 works out as £24,324 a year. Now let’s say that they build a balanced portfolio of FTSE 100 dividend-paying stocks that yield 5% a year on average. If they took that as income, the pot would need to be worth £486,480.
Thatâs a big number, no getting away from it. Nobody builds a half-million-pound ISA overnight. It takes time. Suppose an investor already has £25,000 tucked away. If they invest a further £250 a month for 30 years and their portfolio grows at an average rate of 7% a year, they’d have roughly £493,525.
This simple example shows what consistency can achieve. Those starting later would need to contribute far more, while younger investors benefit enormously from compounding doing the hard work. Hand-picking stocks can help, but share price growth isn’t guaranteed, nor are dividends.
It’s why investors should aim to create a portfolio of around a dozen stocks. If some struggle, others will hopefully compensate. If that’s too daunting, simply buy a FTSE 100 tracker.
British American Tobacco shares are hot
One dividend stock worth considering today is British American Tobacco (LSE: BATS), a long-standing member of the FTSE 100. Itâs not for everyone, I donât own tobacco shares, but I often wish I did.
The British American Tobacco share price rose 33% last year and is up 68% over two years. Despite that, it still trades on a price-to-earnings ratio of 10.9, well below the FTSE 100 average of around 17. Thereâs a reason for that valuation gap though. Cigarette sales are declining in the West, regulation’s tough, and alternatives such as vaping could face tighter rules too.
The real hero is the dividend. The trailing yield sits at 6.1%. Also, the board has increased shareholder payouts every year this millennium, giving investors an income that grows over time.
Cash flows look solid for now, but the long-term outlook could be mixed if smoking declines outside of the West too. People have been warning about that for years, but the cash still keeps flowing.
Not everyone will touch tobacco, and thatâs fine. There are plenty of other high-yielding blue-chips with different risks and rewards. The lesson here isnât about one company. Itâs about starting early, spreading investments sensibly, and giving time for the income and growth to compound over a working lifetime.
My investment resolution is likely to be the same in 2027, and every year until it’s time to start drawing that passive income.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. 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.
