How much do you need to invest in FTSE 100 stocks to target £2,658 a month retirement income?

Since turning 50, I have focused on high‑dividend FTSE 100 shares to fund my future retirement.

I only wish I had started earlier, as time greatly boosts dividend returns.

So, if I were starting my investment journey today, how much would I need to invest to secure the income I want?

My benchmark retirement income

The current UK State Pension is £11,973 a year, or £997.75 a month – call it £1,000.

The Pensions and Lifetime Savings Association says the minimum required for one person to enjoy a ‘comfortable retirement’ is £43,900 a year, or £3,658 a month.

That is a deficit of £2,658 for someone (such as me) who wants to enjoy some of life’s finer things. This equates to £31,896 a year.

If my funds were in investments that yielded 10% a year, I would need £318,960 of capital to obtain this monthly amount.

At a 9% annual yield, the capital amount required would rise to £354,400, and at 8% it would be £398,700. Meanwhile, a 7% yield would see the capital needed rise to £455,657.

How much initial investment?

These figures may seem daunting, but ‘dividend compounding’ changes the picture. It allows smaller savings to grow into much larger sums — and the earlier you start, the greater the effect.

For example, for a 10%-yielding stock, £18,280 would need to be invested today for the capital to reach £318,960 in 30 years. For a 9%-yielding stock, this initial investment figure would be £26,700 to hit the required £354,400.

Meanwhile, for an 8%-yielding share to reach the £398,700 required the investment today would be £39,600. And for the 7%-yielding stock, this would rise to £59,900 to hit the £455,657 capital required.

However, these initial investment figures look even more accessible if achieved instead through regular monthly deposits in an investment account.

My preferred FTSE 100 high-yield options

It is also wise to diversify the stocks used to reach these targets, as there are risk in all shares.

In my case, I have three FTSE 100 high-yield shares I hold precisely for the purpose of generating high retirement income.

These include Legal & General (LSE: LGEN) with a current yield of 9%. A risk here is that competition in the sector could reduce its earnings, which in turn could reduce its dividend yield.

That said, analysts forecast that it will raise its dividend to 21.8p this year, 22.2p next year, and 22.7p in 2027. This would give respective yields of 9.2%, 9.4%, and 9.6%.

These rises look well supported to me by analysts’ forecasts for its earnings growth. This is the driver of any stock’s dividends over time. Specifically, the projections are that its earnings will grow a very robust 27.2% a year to the end of 2027 at minimum.

The other two are Phoenix Group Holdings (8.2%), and M&G (7.7%).

The three deliver an average 8.3% dividend yield, although analysts forecast this will rise for each of the next three years.

This would mean a total £35,100 investment today to give me a monthly dividend income of £2,658 after 30 years. 

Given these returns, I will be adding to my holdings in each of these three stocks very shortly.

I also have my eye on other high-quality, high-yield stocks that can generate significant retirement income too.

The post How much do you need to invest in FTSE 100 stocks to target £2,658 a month retirement income? appeared first on The Motley Fool UK.

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• As markets dip Legal & General shares now yield a stunning 9.2%! Time to consider buying?
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Simon Watkins has positions in Legal & General Group Plc, M&g Plc, and Phoenix Group Plc. The Motley Fool UK has recommended M&g 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.

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