How much do you need in a SIPP or ISA to target a second income worth £500 a week?

Aiming for a second income is what first got me interested in dividend investing. Now I do this both through a Stocks and Shares ISA and a Self-Invested Personal Pensions (SIPP). Both investment wrappers are a brilliant way of generating a regular passive income, tax-efficiently.

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.

The idea’s simple. Build a portfolio of income-producing shares, reinvest the payouts while working, then let the dividends flow as income after retirement. But how much do investors need to generate a meaningful income of, say, £500 a week, which works out as £26,000 a year?

Investing for retirement

Yield’s the key here. The FTSE 100 currently yields around 3.25%. I prefer to target something a little higher from a portfolio of carefully selected UK blue-chips.

With a 5% yield, an investor would need £520,000 to hit that second income target. If they could increase the yield to 6%, they’d generate the same income from £430,000.

That sounds daunting, but it’s doable given time. An investor who put away £350 a month would hit that target in 30 years, assuming annual average growth of 7%. If they increase their investment every year, to keep up with inflation, they’d get their faster.

Land Securities Group has a high yield

One share I keep an eye on is Land Securities Group (LSE: LAND). It offers a trailing dividend yield of 6.3% today, well above the 3.25% offered across the wider FTSE 100. Its share price has been bumpy, unfortunately. It’s climbed a modest 9% over 12 months and around 20% across five years. Add in dividends, and the overall return is steady, just not spectacular. That could soon change though.

Landsec owns offices, shopping centres and retail parks, and shifts in the way we live and work have taken their toll. Working from home has threatened office demand, and the switch to online shopping has hit some shopping centre footfall. The cost-of-living crisis hasn’t helped either, while higher inflation has driven up the cost of debt. These issues could drag on.

Yet its board’s taking control. In its latest update on 23 September, Landsec highlighted strong progress, with £644m of older or lower-return assets sold since March and fresh investment planned for retail sites. Management expects like-for-like net rental income to rise 3% to 4% this year, with earnings per share growing 2% to 4%.

FTSE 100 diversification

Interest rates are expected to fall as inflation cools, and that could help Landsec in two ways. The yield will look more appealing in a lower-rate world, and falling borrowing costs should support profits. The shares trade on a price-to-earnings ratio of 12.77, which looks reasonable for a real estate investment trust (REIT).

These must return most rental profits to shareholders as dividends, which can make them attractive income candidates for those who understand the model.

I think investors might consider buying, but only as part of a balanced portfolio. The FTSE 100 is packed with top income stocks today, and there are others I would look at first. The key is to start investing early and stick with it. With the right approach, that second income can become a reality.