Want to retire with a healthy passive income to supplement the State Pension? Many UK investors are aiming for exactly that, using a Stocks and Shares ISA or SIPP — or a combination of both.

Why £2,091 per month? It’s twice the UK State Pension. And trebling the state retirement income seems like an inspiring target.

And the beauty of an ISA is that all returns from it are free of tax. Dividends, capital gains… not a penny to pay.

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.

ISAs and SIPPs offer different tax advantages. So each investor needs to weigh up both in order to choose the best combination for their individual circumstances. But let’s use historic ISA returns to get an idea of the possibilities.

Stocks and Shares ISA gains

Historically, Stocks and Shares ISAs have done well. And over the past 10 years, we’ve seen an average annual return of 9.6%. It’s been an erratic decade, though, with some big ups and downs.

In 2019/20 ISA year, hammered by Covid, Stocks and Shares ISAs lost 13.3% on average. But the next year saw an average total return of 13.5%. That’s an impressive rebound in such a short time.

To earn £2,091 per month passive income, we’d need a pot of almost exactly £240,000. That does depend on a few things, though:

• The average annual 10.6% return continues
• We reinvest all our dividend income
• We diversify intelligently and minimise risk

Nothing is guaranteed. But on this example, an investor could hit the target and earn their monthly £2,091 by investing £500 per month for 16 years.

In reality, it has to be better to plan to invest for a bit longer than that, and set an annual return target a bit lower. How much to invest depends on each individual investor’s circumstances too… But going for the maximum you can comfortably manage will surely increase your chances of hitting your goals.

Dividends or growth?

These past returns are from a mix of share price growth and reinvested dividends. Rolls-Royce Holdings is a cracking example of the former, up more than 1,000% over five years. And the past five years have been good to bank stocks too, like Lloyds Banking Group.

And there are some tasty potential dividends around right now too. The Greencoat UK Wind (LSE: UKW) share price has suffered a poor decade, as the chart shows — as oil has regained popularity.

But it offers a huge 10.7% forecast dividend yield. And, Greencoat just lifted its annual dividend at least in line with inflation for the twelfth consecutive year — and plans to keep on doing so.

Long-term cash cow

Clearly, there’s a risk from focus moving away from renewable energy in today’s political climate. I’m convinced it has to come back eventually — but it might take a while. Still, since the Iran conflict, we’ve seen the Greencoat share price ticking up. Anything connected with geopolitics, however, always comes with danger.

But I do think investors should consider Greencoat UK Wind as part of a long-term ISA targeting passive income to beat the State Pension.