How much do you need in a SIPP to replace the average £39,039 UK salary?

I have high hopes for my SIPP. In fact, I’m betting my retirement on it.

The key reason for investing while of working age is to build a pot of money to live off when you finally quit. The Self-Invested Personal Pension is a great way of doing this. A SIPP turbo-charges your retirement savings right from the start, because you can claim upfront tax relief on your contributions. If you’re a basic rate taxpayer, each £100 you pay into your SIPP only costs you £80.

Higher-rate taxpayers do even better. They pay just £60 from their own pocket, provided they remember to claim the additional relief on their self-assessment tax return.

What other tax benefits do I get?

All the share price growth and dividend income you generate will compound and grow from this higher base. Even better, you can take 25% of your pot free of tax from age 55 (rising to 57 in 2028). However, you may be liable for income tax on further withdrawals. By investing in a Stocks and Shares ISA as well, where withdrawals are tax free, you can minimise your overall liability and keep more of your income for yourself.

So how much do you need in your SIPP to generate £39,039 a year?

The answer depends on the yield:

• With a 4% yield, you’d need £975,975 invested
• At 5%, the required total falls to £780,780
• And at 6%, the figure drops to £650,650

Those are daunting sums. However, we’re aiming high here. To generate the average UK salary purely from passive income is a tall order. You can enjoy retirement with much less. Especially if you get the full State Pension, and have ISAs and other retirement savings.

Let’s say you already have £50,000 in an ISA or SIPP and retirement is still 30 years away. If you invested £450 a month and generated an average total return of 8% a year, you’d end up with £1.16m. If you’re a higher-rate taxpayer, that £450 only costs you £270 a month.

Do NatWest shares pay me income?

A popular way to build wealth in a SIPP is to build a balanced portfolio of FTSE 100 shares. I recently bought UK banking blue chip NatWest Group (LSE: NWG). Its shares have done brilliantly, climbing 203% over the last five years. Today, they have a trailing yield of 5.1%. If reinvested, that would lift the total return towards 230%.

After such a strong run, I think the NatWest share price is likely to slow. Especially since the bank is primarily focused on the UK, and our economy isn’t exactly flying right now. Higher inflation could hit demand for mortgages, and lead to a surge in bad debts as existing customers struggle to keep up with repayments. On the other hand, if the Iran peace deal holds, sentiment could pick up.

Either way, NatWest shares look incredibly good value with a price-to-earnings ratio of 9.25. That’s way below the FTSE 100 average of 16. It’s worth considering both for share price and dividend income with a long-term view. In fact, I’m limbering up to buy more myself.

Should you invest £5,000 in NatWest Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NatWest Group Plc made the list?

Harvey Jones owns shares in NatWest Group.