The Stocks and Shares ISA allows investors to build wealth by harnessing the growth and income-generating powers of equities. Every penny is free of dividend tax and capital gains tax for life. But how much do investors need in an ISA to fund a decent retirement, and how should they go about building it?

Please note that tax 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.

The first step often seems the most daunting, which is to set up an ISA in the first place. There are plenty of platforms to choose from, with AJ Bell, Hargreaves Lansdown, i teractive investor the best known, but don’t ignore smaller rivals too. It’s ultimately a personal decision.

FTSE 100 shares build wealth

Next, try to use as much of that £20,000 annual ISA contribution limit as soon as possible. Don’t hang around. The first £1 anybody invests is the most valuable, because it has so much longer to grow.

Let’s say somebody puts £300 a month in an ISA from age 30. If they invest in a spread of FTSE 100 shares that delivers an average annual return of 8% a year, they’ll have £789,537 by age 67.

If they delay for just two years, until 32, they’ll get an awful lot less. Assuming the same £300 contribution and 8% growth, they’d have £669,968 by age 67. That’s a staggering £119,569 less. Yes, I find that figure pretty hard to believe too. But it’s because those first two annual contributions had 37 and 36 years to compound and grow.

So how much income will the £789,537 pot deliver? If the stocks in their portfolio deliver an average yield of 5%, they’ll pay £39,477 a year. Which is impressive.

British American Tobacco is a top yielder

While that’s a relatively high yield, plenty of FTSE 100 dividend stocks deliver that, including British American Tobacco (LSE: BATS). I don’t personally buy tobacco stocks, but if I’d realised what I’d miss as a result, I might have taken a less high-minded approach.

British American Tobacco is one to consider with a track record of paying dividends and increasing payouts every year this millennium. The trailing yield is 5.5%. Investors have bagged plenty of growth too, especially lately. The British American Tobacco share price is up 40% over the last year, and 88% over two.

Smoking may have declined in the West, but Big Tobacco has proven adept at increasing its share of a declining market through strong branding, while taking advantage of new growth opportunities in emerging markets. It’s also pioneering alternatives to cigarette ‘sticks’, such as vapes. 

There are risks. Tobacco makers are under constant attack from regulators, and the health issues can’t be denied. Also, the shares could idle or fall after such a strong run.

To build a secure income, investors need to build a diversified portfolio containing at least a dozen FTSE 100 shares. The stock market is volatile today, but as a result I can see plenty of bargains out there.