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Image source: Getty Images<\/p>\n
One way of supplementing the State Pension \u2014 currently (23 January) \u00a3230.25 a week for those who have a full record of national insurance contributions \u2014 is to have a generous passive income earned from dividend shares.<\/p>\n
Understandably, some put off saving for their retirement until later in life. Even so, it\u2019s still possible for a person in their 40s to build a decent second income. Here\u2019s how they could aim to match the \u00a311,973 a year paid by the government.<\/p>\n
In the beginning\u2026<\/p>\n
Personally, I think a Stocks and Shares ISA<\/a>\u2019s an excellent investment vehicle. Its primary benefit is that income and capital gains can be earned free of tax.<\/p>\n 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.<\/p>\n Current rules permit \u00a320,000 to be invested each year. But a 40-year-old with no savings isn\u2019t going to be able to afford this. Instead, I\u2019d suggest a strategy of investing little and often.<\/p>\n For example, putting \u00a3300 a month into an ISA for 26 years (the state retirement age is currently 66) would grow to \u00a3256,512, assuming an annual return of 7%.<\/p>\n On retirement, some people prefer to buy dividend shares and live off the income rather than touch their capital. A portfolio of stocks yielding 4.7%<\/a> would be sufficient to generate a retirement income of \u00a311,973 from the \u00a3256,512 sitting in our example ISA.<\/p>\n Sometimes, a high yield can be a warning sign that investors are expecting a cut. Therefore, rather than focus exclusively on the biggest yielders, I think it\u2019s a good idea to have a mix of stocks with the emphasis on identifying reliable dividend payers.<\/p>\n These are often found in \u2018boring\u2019 industries like the utilities sector, where reasonably-predictable earnings streams enable steady payouts to be made.<\/p>\n Such as?<\/p>\n