Here’s how an average UK investor could target a £69k passive income with dividend shares

There are many ways that investors can use their retirement fund to source a passive income. My plan is to invest my money in dividend shares, which I’m hoping will substantially supplement my State Pension and help me live comfortably.

Investors like me could buy an annuity product with their nest egg for a guaranteed income. Alternatively, they might draw down a percentage of their portfolio. That plan of action could fund their retirement for 20-30 years.

But my preferred option is to plough my money into a range of dividend stocks. That way, I have a chance to receive an income stream that grows over time, unlike an annuity where cash rewards are fixed. And I won’t erode my capital, which is a major drawback of drawdown strategies.

There is one big danger of this strategy, however: dividends are never, ever guaranteed. However, a diversified portfolio of dividend-paying shares can help investors substantially reduce this risk.

Targeting a near-£69k passive income

But how much could an investor make with this strategy? That depends on the size of their nest egg by retirement, and the dividend yields on the shares that they buy.

Let’s say we have an investor who puts away £514 a month in growth and dividend shares over 30 years. That’s the average amount that Brits invest each month, according to Shepherds Friendly.

If they can achieve an average annual return of 8% each year, they would — after 30 years — have built a retirement fund of £766,045. This could then generate a yearly passive income of:

• £38,302 if invested in 5%-yielding dividend shares
• £45,963 if invested in 6%-yielding dividend shares
• £53,623 if invested in 7%-yielding dividend shares
• £61,284 if invested in 8%-yielding dividend shares
• £68,944 if invested in 9%-yielding dividend shares

Trust exercise

These projections show the appeal of investing in high-yield dividend shares. The problem is that this strategy carries higher risk, as the largest yields often come from shares struggling with weak earnings or poor balance sheets.

But as I said at the top, building a diversified portfolio can greatly reduce the risk of trouble for investors. This can be achieved cheaply and simply with a dividend-based investment trust. Take the Henderson Far East Income (LSE:HFEL) trust for instance.

As its name suggests, this investment vehicle is set up “to maximise the growing opportunities for high-income investing in the Asia-Pacific market“.

This means it carries more regional risk than trusts that hold shares from across the globe. Yet, it’s still quite well diversified in my view, holding 75 shares across sectors as diverse as financial services, utilities, real estate, and information technology. This depth has given Henderson Far East Income the strength to consistently raise annual dividends since 2007.

There’s another big advantage to this particular trust. By focusing on high-growth nations like China, India, Taiwan, and Indonesia, it has the scope to deliver substantial capital gains and an abundant and growing passive income. It’s a strategy that’s so far proved highly effective, and City analysts are tipping another year of dividend growth in 2025, leaving a huge 10.6% forward dividend yield.

While dividend shares carry risks, a well-planned strategy — perhaps with the use of investment trusts like this — can potentially deliver a large and growing retirement income.