How much passive income will I get from investing £10,000 in an ISA for 10 years?

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Retirement is edging closer, and I’m focused on maximising the passive income I can generate from investing in FTSE 100 shares. Most of my pot sits in a Self-Invested Personal Pension (SIPP), so now I’m accelerating contributions to a Stocks and Shares ISA. The two have complementary tax benefits, so I’m hoping to balance them out.

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.

As a freelance writer, I may never fully retire, but I’d like to have the option to do so within a decade. I may struggle to invest £10,000 a year going forwards, but let’s assume I can. I certainly won’t be the only racing to play catch up, as retirement suddenly becomes the number one financial priority. Picking the right FTSE shares can speed things along nicely.

FTSE 100 for dividends and growth

So let’s say I invest £10,000 a year in higher-yielding FTSE 100 income stocks and generate an average annual return of 8%, with dividends reinvested. In that scenario, my ISA would grow to £156,454 after 10 years.

That’s a solid return, but a decade isn’t enough to enjoy the real benefit from investing in shares, which is long-term compounding. Someone investing £10,000 a year over a 40-year working life could end up with a staggering £2.8m, assuming the same 8% a year growth. They’ve made four times the contributions but ended up with 18 times the final value. Time is the investor’s biggest ally, so don’t waste it.

Now let’s also assume my ISA delivers an income yield of 5.5%. While that’s some way above the FTSE 100 average of 3.1%, I can target this by targeting higher-yielding stocks. If I’m right, my £156,454 will generate income of £8,605 a year, or £717 a month. Hardly riches, but a handy kicker on top of my other income sources.

Phoenix Group Holdings’ shares

One stock I’m considering for my ISA is Phoenix Group Holdings (LSE: PHNX), which I already hold in my SIPP. The FTSE 100 insurer has a trailing yield of 7.4%, while the shares climbed 45% in the past year.

With a price-to-earnings ratio just above 22, Phoenix is beginning to look expensive and I expect the shares may slow a little in 2026. The real draw is the dividend, which the board has increased for nine consecutive years. I believe shareholder payouts should prove sustainable, as Phoenix generates plenty of cash, with a £300m surplus last year, according to UBS.

As with every stock, there are risks. Phoenix has to keep developing new areas of business to keep the cash rolling in. It operates in a competitive market where exciting new opportunities like bulk annuities quickly attract a host of rivals.

Also, a wider stock market crash, which some expect next year, could hit the value of the £300bn-or-so of assets it holds to protect against insurance risks. I still think it’s well worth considering and will balance out these threats by investing in a spread of FTSE 100 dividend stocks. I can see plenty more brilliant high-yielding passive income stocks to consider today.

The post How much passive income will I get from investing £10,000 in an ISA for 10 years? appeared first on The Motley Fool UK.

More reading

• I asked ChatGPT how to build £1,000 a month in passive income using an ISA – here’s what it suggested
• How much do you need in a Stocks & Shares ISA for a £3,333 monthly passive income?
• 7.7% yield! These 3 dazzling dividend shares could generate a £1,573 passive income in an ISA
• Yields up to 8.5%! Should I buy even more Legal & General, M&G and Phoenix shares?
• Can you turn your Stocks and Shares ISA into a lean, mean passive income machine?

Harvey Jones has positions in Phoenix Group Plc. 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.

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