What do I need for a passive income of £ 100k a year?

As older investors, both who approach 57, my wife and I are planning to retire. Currently, we both work, but we will eventually leave the world of work. Therefore, our goal is to develop our passive income to replace our profits over time.

What is our objective income?

It would be difficult to replace our income won without hard work and good fortune. Even so, our first objective is a passive income of £ 100,000 a year, easily to live, even after taxes.

How much capital generates £ 100k a year before the tax? This table shows a range, based on investment yields:

With a long -term yield from 10% per year, we need £ 1 million to generate £ 100k per year of investment income. History suggests that such high yields rarely persist, so our pot, and passive income could begin to be reduced.

This table also does not take into account the growing cost of living. For example, with an inflation of 3% a year, the purchasing power of £ 100k today would fall to £ 74,409 after 10 years. Therefore, we must ensure that our income can resist stroke storms and greater inflation.

I will play it safe

According to historical data, I intend to withdraw, for example, 4% a year, regardless of our future investment yields. History suggests that this retirement rate is realistic and prudent for many decades. In fact, such a modest retirement rate could allow our capital to sleep.

Consequently, to generate a passive income of £ 100k per year based on a retirement rate of 4% per year, we need £ 2.5 million in income -generating assets. But this will not be a big problem as it seems, because we already have some guaranteed pensions.

Pensions are also passive income

My wife and I began to work in the late 1980s, building pensions for 35 years. We should both receive the full state pension at age 67 in 2035. By then, this will be worth more than £ 25,000 a year among us.

My wife also has a company pension paid since 2021. This is around £ 25,000 per year, which increases our guaranteed retirement income above £ 50,000 per year. This leaves us with £ 50,000 a year of passive income to find in another place, what we can achieve.

MONEY 'Free' of Actions

My favorite form of passive income is the cash dividends of certain actions. Although future payments are not guaranteed, most Ftse 100 Companies pay regular dividends. And a standing action that we have for passive income is the investment manager M & g (LSE: MNG).

Founded in 1931, M&G launched the first unit of the United Kingdom confidence that year. Since then, it has grown to administer financial assets worth around 350 billion. After reaching a maximum point in 241.1p in 2024, the price of M&G shares is now 211.6p. This leaves low shares by 3.9% in one year and 11.7% in five years.

Today, this part offers a delicious dividend yield of 9.36% year, one of the highest in London. In addition, the annual payment of M&G has increased from 15.77PA of participation by 2019 to 19.7p by 2023 (24.9%) and could continue to rise.

Of course, as Heritage Manager, the success of M&G depends on financial markets (sometimes volatile). During turbulent times, their profits have been mistreated by the fall in assets prices, more recently in 2020 and 2022. But we are happy to own this action for a powerful passive income!