I don’t have a private pension. Instead, I’ve spent many years building a portfolio of shares that I hope will generate enough passive income to give me a financially secure old age.

I’ve made a few mistakes along the way. Some of my investments have done better than others. And many times I should have cut my losses instead of persevering with an under-performing share.

But successful investing is so much easier with the benefit of hindsight!

Crunching the numbers

With this in mind, I wonder how much passive income I could generate over 40 years if I started with £20,000. This is the annual limit of a Stocks and Shares ISA. Any gains and income will be tax-free.

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Remember, this is a theoretical exercise. Growth rates and dividends are never guaranteed.

It would be a good idea to spread this sum across several stocks. Yes, choosing just one could be a great decision if it soars. But the chances of pulling this off are slim. It’s therefore best to pick a few in anticipation that some will do better than others.

Personally, I’d also reinvest any dividends received and buy more shares with them. This is known as compounding and has been described as the eighth wonder of the world.

Since 2000, the FTSE 100 has grown by an average annual rate of 4.1% (with all income reinvested). This isn’t a stellar performance. Other stock market indexes have done better.  

But if this continued for 40 years, my theoretical £20,000 would grow to £99,784, between now and 2064.

What next?

At this point, I’d try to find some high-yielding shares — like Legal & General (LSE:LGEN) — that could give me passive income.

The financial services provider has promised to pay a dividend of 21.36p a share for its current financial year. This means it’s presently yielding 9%.

It’s also committed to increasing this by 2% a year up until 2027.

If I could achieve a similar yield in retirement, my fund could give me an annual income of £9,479.

The group is anticipating strong growth in its pensions risk transfer business. This is where third-parties seek to offload their pension funds. It says there’s a pipeline of £24bn waiting to transfer.

The company makes money by charging an initial fee and then hopes to generate more income from the assets than it has to pay in pensions.

But there are risks.

Although its annuities division has done well due to the higher interest rate environment, returns could fall if borrowing rates are cut (as anticipated) over the next few years.

The business is also vulnerable to a global economic downturn.

Despite these possible challenges, it’s the sort of stock I’d consider putting in my ISA when I next have spare funds.

It has a long track record of growing its dividend and its shares are currently trading on a historically low forward earnings multiple of 11.

Of course, I’ve no idea whether Legal & General will still be around in four decades’ time but I’m sure other high-yielding shares will come along.

Obviously this is a theoretical exercise – I don’t think I’ll be here in 40 years’ time! But when it comes to investing, it does illustrate the benefits of starting early and sticking to a plan.