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I’m buying UK shares to make passive income in retirement! Here’s why

Older couple walking in park

I’ve been building a retirement fund with my Stocks and Shares ISA for years. I don’t want to have to worry about making ends meet. I want to make the most of my later years and not look back with regret.

None of us can accurately predict what will be around the corner. This is why building a nest egg with UK shares from an early age could prove essential.

One in three change retirement plans

A recent survey of over-55s by Royal London perfectly illustrates this point. The life insurance and pensions giant says that “one in three (33%) of those planning to retire in the next five years are changing their retirement plans due to the current cost of living crisis.”

A whopping 58% of respondents said they would now consider working in retirement, with 45% citing considerations around money.

Royal London said that 39% of pre-retirees are “concerned about being able to afford to live the lifestyle they want.” And 38% are worried about not having enough money to get by.

Investing early on

Investing at an early age may have enabled many of these people to retire comfortably. The Covid-19 pandemic, the war in Ukraine, and Brexit — and their blended impact on peoples’ finances — need not have derailed their plans.

Trying to build a retirement fund today is much tougher for many as runaway inflation hits our ability to save. So investing for later years when times are good is essential.

But even in this cost-of-living crisis it’s still possible to build decent long-term wealth. Money might be tighter, but even with a little put aside each month, share investors can take a big step towards retiring in comfort.

Compound returns

This because of the wonder of compounding. Basically this process allows me to earn interest on my investments and on all previous interest. And over time this can come to a huge amount of money.

Let’s say I’m 30 and can afford to invest £200 a month in a Stocks and Shares ISA. By the time I reach 65 I could realistically expect to have made between £413,560 and £650,458.

This is because the average long-term stock investor tends to enjoy an annual return of 8% to 10%. Over a period of decades this high rate of return can allow an individual’s wealth to grow exponentially.

A BIG passive income

This is why I use all the spare cash I have to buy UK shares. It’s my plan to make a healthy passive income in retirement to supplement what could be a threadbare State Pension.

Let’s say I manage to make that minimum of £413,560 after 35 years and apply the 4% withdrawal rule. That’d give me an annual income of £16,542 to live on.

Applying the 4% rule means I can enjoy an income from my retirement fund without it depleting over time. And it could give me the extra cash to maintain my financial independence and properly enjoy my retirement.

The post I’m buying UK shares to make passive income in retirement! Here’s why appeared first on The Motley Fool UK.

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Royston Wild 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.