How much would someone need in an ISA to double the state pension and target a £24,436 annual income?
For those with a full record of National Insurance contributions, the current State Pension is £230.25 a week, equivalent to £11,973 a year.
But according to industry experts, a single personâs likely to need £13,400 a year to provide for a basic retirement. To help make up this shortfall (and more), I reckon a Stocks and Shares ISAâs worth considering. Hereâs why.
Crunching the numbers
According to the Office for National Statistics, more than half of all 23-year-old men are in full-time employment. For women, the majority are employed at the age of 24. And those who are currently in their mid-20s will have to work until they are 68 before they can access the state pension.
This means most people will have around 45 years to plan for their retirement. This is a long time and by starting early, I think itâs possible to build a sizeable investment pot for later in life.
For example, someone putting £75 a month into a Stocks and Shares ISA — at an annual growth rate of 6% — would build a portfolio of £207,733 after 45 years. At this point, a collection of dividend shares paying 6% would produce an annual income of £12,463. This is approximately £500 more than the current State Pension. Combined, the two income streams would generate £24,436 a year.
But is it really possible to earn 6% from dividends? Well, with the right shares, I think it is.
For example, the FTSE 100 is currently (2 April) home to eight stocks yielding more than this.
One of these is Aviva (LSE:AV.), the insurance, wealth, and retirement group. For 2025, it declared a dividend of 39.3p. In cash terms, this is 78% higher than in 2021. And it means the stockâs yielding 6.5% at the moment. This is a better return than the 6% used in the example above.
Buyer beware?
However, savvy investors know that above-average yields could be a warning that the City’s expecting a cut.
Indeed, this could be the case if problems in the Middle East continue and the group’s enormous investment portfolio fails to generate the anticipated returns. Like all of us with exposure to the stock market, I suspect its equities have taken a bit of a hit lately.
Also, its car insurance business (notably, it owns Direct Line) could be affected if AI-powered tools make it easier for customers to shop around looking for cheaper deals.
Right place, right time
However, for now at least, the group appears to be going in the right direction. And I think it’s well positioned to capitalise on some interesting industry trends that seem to be emerging.
Younger people appear to be buying more private health insurance than their parents as dissatisfaction with the NHS grows. And they are taking more of an interest in their retirement planning.
In 2025, the group reported a 25% improvement in operating profit and a 14% increase in earnings per share compared to a year earlier. With a 12-month target thatâs 16% higher than todayâs share price, analysts believe investors have yet to fully factor in the groupâs potential.
For these reasons, I think Avivaâs one of many UK shares that could be considered by those looking to build a diversified portfolio of income stocks.
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More reading
- Aviva shares fell 12% in March! Here’s my outlook from here
- Down 10% in a month with a near-7% yield â are Aviva shares the perfect ISA buy?
- Aviva shares are still up strongly â so why has the yield jumped back above 6%?
- How big a Stocks and Shares ISA is needed to target £500 of monthly passive income?
- Donât wait for a crash: this FTSE 100 dip already offers passive income gold
James Beard has no position in any of the shares mentioned. 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.
