Why you need a £213,655 stock portfolio to double the State Pension with shares

Retirement saving and pension planning

How difficult would it be to match your State Pension with an equal income from shares? Obviously, the answer depends on how many years you have left until retirement, but it turns out there is an easy way to work this out.

To get an idea of how much money you’ll need to retire on, you can use the 4% rule. This is a very widely-used rule of thumb which says that if you withdraw 4% of the initial value of your retirement fund each year, it should last you at least 30 years.

The State Pension is currently £164.35 per week, or £8,546.20 per year. Based on the 4% rule, my sums show that a share portfolio worth £213,655 would be needed to generate a matching income.

What about inflation?

This calculation shows what you’d need to match the State Pension if you were retiring tomorrow. It doesn’t take into account inflation.

Under the government’s so-called triple-lock rule, the State Pension will increase by at least 2.5% each year. Here’s how the annual amounts will change over different periods…

Retirement date

Minimum State Pension/year

Portfolio value required under 4% rule

2023

£9,669

£241,725

2028

£10,940

£273,500

2033

£12,377

£309,425

2038

£14,004

£350,100

A hands-off portfolio

I enjoy investing. But I don’t want to spend all of my retirement glued to a computer screen analysing stocks. That’s why I’m aiming to build a long-term portfolio of dividend stocks that I can hold unchanged for many years.

In the remainder of this piece I’m going to take a look at three companies that have been in business at least 100 years and have long histories of dividend growth.

Don’t bet against oil

It’s fashionable to think that the world will be driving around in electric cars in 20 years. But even if many of us are, lorries, shipping and aviation all seem likely to remain dependent on fossil fuels. And that’s without considering the demand from gas-powered power stations.

With good management, I believe Royal Dutch Shell should be able to adapt to a lower carbon world.

It’s also worth remembering that this company hasn’t cut its dividend since the Second World War. This impressive track record makes today’s starting yield of 5.3% even more tempting to me.

Investing in batteries

If you’re really not keen on oil and gas, one alternative pick from the FTSE 100 might be chemicals group Johnson Matthey. At present, automotive catalytic converters are one of the group’s key products. But the firm is investing heavily in battery technology, with an eye on growing demand from the transport sector.

Johnson Matthey’s 200-year history shows that this business has reinvented itself several times before. I reckon it will continue to do so. This is a stock I’d be happy to buy and hold forever.

Profit from pensions

My final pick is insurance and asset management firm Legal & General Group. In recent years this company has adapted to the change in pension regulations by becoming one of the biggest players in the ‘buy-in’ bulk annuity market. This means it sells insurance to cover the liabilities from corporate pension schemes.

My view is that the group’s specialist skills and economies of scale mean this should be a profitable long-term strategy. The shares look cheap to me on 9 times forward earnings, with a 6.3% dividend yield.

Buy-And-Hold Investing

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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