How much do you need in an ISA or SIPP to target a £3,000 monthly second income?

I’m not leaving my financial situation in retirement to fate. A combination of demographic changes and deteriorating public finances leave the future of the State Pension up in the air. Not taking steps to protect oneself by making provisions for a second income could prove disastrous.

The current full State Pension of £11,973 a year isn’t much to shout about. I’m not expecting things to change by the time I’m ready to retire 25-30 years from now, either. Speculation mounts that the State Pension might not exist at all by then.

So, I’m taking steps to build a retirement fund using Stocks and Shares ISAs and Self-Invested Personal Pensions (SIPPs). I think targeting a £3,000 monthly (or £36,000 annual) passive income could provide financial security for me when I eventually retire.

But how large would an investor like me need their portfolio to be to achieve this?

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.

Targeting a £3k income

There are a couple of paths individuals can take to generate a retirement income. One is to draw down a percentage of their retirement portfolio — 4% is a popular level that guarantees an income for two to three decades.

Another common choice is to invest in dividend stocks for a pure passive income. Company dividends are never guaranteed, but a diversified portfolio (of, say, 20-plus stocks) can reduce risk and help provide a stable long-term income.

This method also allows room for further portfolio growth over time. For these reasons, this is the route I’m planning to take in retirement.

To make it a fruitful one, giving me a £3,000 monthly income, I’ll need a combined ISA and SIPP pot of £515,000. That’s based on holding a shares portfolio with an average 7% dividend yield.

A top FTSE 100 share

A portfolio of £515,000 won’t be easy or quick to generate. But it is achievable with time and patience. £500 a month invested in stocks and funds providing an 8% average annual return would deliver this in under 26 years.

HSBC (LSE:HSBA) is a top stock I think could deliver the retirement portfolio I’m seeking. Past performance isn’t always a reliable guide to future returns, but a near-11% return here since 2015 bodes well for my future plans.

Asia-focused banks face political risk in key markets of China and Hong Kong. But the long-term earnings opportunities are vast, driven by the region’s enormous wealth growth and increasing population sizes.

HSBC chief executive Georges Elhedery has predicted Hong Kong will supersede Switzerland as the largest cross-border wealth hub on the planet by 2030. It’s no wonder, then, that the bank is selling Western assets and slashing costs to ramp up investment in Asia.

I’m especially excited by the bank’s bold push into the high-growth wealth management segment. Wealth revenues in Asia rocketed 32% year on year in 2024.

I’m confident a mix of UK and US shares like this one, combined with the tax advantages of the ISA and SIPP, can help me achieve a robust second income in retirement.