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Is 2026 a great year to start building passive income? A new year means new resolutions. And what better resolution could there be than building the kind of reliable passive income of thousands of pounds that might last for the rest of my days?
In the spirit of the year of 2026, let’s take a look at an income of £2,026 monthly. Is it realistic for an average saver to build such an income? And what kind of sum would be needed in an ISA to achieve it?
Worth it?
When talking about creating passive income through an ISA, it’s important to bear in mind this is referring to a Stocks and Shares ISA. Its Cash ISA counterpart is safe and useful for storing cash but has a meagre track record in growing wealth. When compared to inflation over long periods, savings accounts rarely return above 1% annually.
How do we beat inflation by meaningful amounts? One popular approach is to build a high-yield portfolio. This aims to maximise income from dividends to provide a constant trickle of income from the stocks contained within it.
Legal & General (LSE: LGEN) is one option worth considering. The stock paid around a 9% yield in the last year from income derived from its operations in insurance and wealth management. It currently pays the highest yield on the FTSE 100.
Dividends are not guaranteed, mind. Anyone looking to buy any dividend stock – especially one paying close to a double-digit percentage return – will want to look at the long-term payouts and its future trajectory. How does Legal & General perform on that score? Pretty good.
Forecasts expect the current dividend to rise for the next two years. Looking at the past, the Legal & General yield has stayed above the 7% mark for most of the last decade.
Of course, the last 10 years has been relatively plain sailing in economic terms. Should a crisis hit then earnings might be affected and that formerly attractive dividend yield could be on the chopping block.
Caution
A word of caution when it comes to the income, though. That sticker percentage of 9% is never something we should withdraw at. Down years come along. Crises happen. Dividends get cut or cancelled. A robust dividend strategy takes such issues into account by withdrawing at a lower rate than expected returns.
One popular safe withdrawal rate is 4% of the entire nest egg per year. While this is also by no means guaranteed to last forever, it performs well in backtesting against previous times in stock market history – even some of the more turbulent periods! On this rate, a investor needs £607,800 in an ISA for a passive income of £2,026 every month.
While that’s a huge chunk of change to stump up all at once, most investors are working their way to something like that bit by bit. With a little bit of time and help from quality stocks like Legal & General, such large amounts can perhaps be achieved even with relatively modest contriubtions.
