How much do you need in a Stocks and Shares ISA to retire comfortably in 2025?

For anyone targeting an early retirement, a Stocks and Shares ISA is worth considering. Unlike a pension, there’s no minimum age at which someone can start collecting income from their assets.

According to the Pensions and Lifetime Savings Association, a single person needs £31,700 a year to retire comfortably. But how much does someone need to invest to earn that kind of income?

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.

Passive income

The most obvious way of earning passive income in a Stocks and Shares ISA is via dividends. This is where a company distributes part of its profits to shareholders in the form of cash.

The FTSE 100 currently has a dividend yield of 3.3%. So someone invested in a fund that tracks the performance of the index would need £960,606 to generate an income of £31,700 (today, that is. Inflation’s impact will mean that figure would need to be higher for future retirees).

Not all stocks are the same, of course. Shares in Legal & General, for example, currently come with a 9.16% yield, which allows someone to retire comfortably with £346,069.

There is, however, a catch. A high dividend yield is often a sign that investors are concerned about the possibility of payments being lowered or suspended in the future.

At the other end of the scale, there are companies like Diploma. Future growth seems highly likely, but a 1.12% yield means earning £31,700 requires an investment of over £2.83m.

But the best businesses manage to both grow and return cash to shareholders at the same time. These are hard to find, but they do exist. 

Growth and dividends

Games Workshop (LSE:GAW) is a good example. Over the last 10 years, the firm has returned around 80% of its net income to investors in the form of dividends. 

That doesn’t leave a lot for investing in growth opportunities. But the firm’s key asset its Warhammer franchise, which is intangible and doesn’t require huge amounts of cash to maintain.

As a result, Games Workshop has managed to grow revenues at an average of 18% a year over the last decade, while returning cash to shareholders. That’s an outstanding result.

Barriers to entry are extremely high for competitors. But household budgets have been under pressure and that’s a risk for a company that targets discretionary consumer spending.

Investors should therefore expect ups and downs, but I expect the overall trajectory over time to be upwards. That’s why it’s the largest investment in my Stocks and Shares ISA.

With a dividend yield of 2.41%, someone looking for £31,700 needs £1.32m. That’s a lot of money in one stock, but I think it’s the best way of thinking about what it takes to retire at the moment.

Retiring early

One of the best things about a Stocks and Shares ISA is that investments held in it aren’t subject to dividend tax. In the context of £31,700 a year, that can be a significant saving.

Getting to a point where I can comfortably retire and live off my investments is some way off. And by the time I get to today’s figure, inflation will probably have moved the bar higher.

Companies with a unique and well-protected product, however, are often able to grow faster than inflation. And I think Games Workshop is a good example that investors should consider seriously.