Will my state pension still apply when I retire? And if so, how huge will it be? And at what age will I be able to apply for it?

Like many Brits, these are questions I ask myself quite often. Currently, the “Triple Lock” system provides retirees with some peace of mind. This ensures that the state pension increases by the highest escalate in average wages, consumer price inflation (CPI), or 2.5%.

However, it is unlikely (in my opinion) that state pension rules will remain so generous in a few decades, as the UK buckles under massive public debt and a wave of fresh retirees emerges. It is almost certain that the retirement age will continue to rise rapidly.

So I’m taking steps to reduce my dependence on government checks in the future. With any luck, I will be completely financially independent. Here’s how I plan to achieve this.

Goal setting

Nowadays, there are many ways to achieve a vigorous second income. By far the most attractive thing to me when I retire will be a steady stream of dividends from investing in stocks. Once I have my portfolio set up, I can sit back and watch the passive income accumulate.

At least that’s the idea. Please remember that dividends are never, ever guaranteed. However, by having a diversified portfolio across a variety of industries and sectors, I can significantly escalate my chances of generating immense and reliable dividend income.

I think an income of £45,000 is a good target to aim for. This is more than the £43,900 that Pensions UK says pensioners currently need to live comfortably.

Building a portfolio

To earn a passive income of this size I would need a portfolio worth £643,000, assuming this was invested in shares with an average dividend yield of 7%.

This seems like a lot of money on paper. However, with an average annual return of 9%*, this could be achieved after just over 26 years of investing £500 a month.

* Stock markets provide an average long-term return of 8-10%.

Seventh heaven

Here’s an example of what a 7% dividend portfolio might look like:

This selection spans a variety of regions and industries and provides exposure to government bonds, which can provide more predictable income than stocks. The average yield of our portfolio is 7.5%, above the target of 7%.

Thanks largely to Henderson High Income Trust, my exposure is spread across 66 different dividend stocks, which provides excellent diversification. Around 90% of confidence is also placed in UK shares, which has a distinct advantage given London’s mighty dividend culture.

This geographical allocation creates a greater risk of concentration. However, Henderson’s extensive experience helps alleviate any concerns I may have. Since 2012, the annual dividend has increased every year, a record supported by the trust’s additional exposure to corporate bonds.

I’m still several decades away from retirement. However, I am confident that such a portfolio will assist me live comfortably, even if the state pension is insufficient.