How can I invest £250 a month to aim for an effortless second income of £79,688 a year for life

I get secondary income from dividends paid on my portfolio of FTSE shares, and reinvest every penny. After retirement, I hope to withdraw those dividends as passive income, hoping to fund my later years.

I invest every month by direct debit, which means I don't have to think about the process. Even a small regular donation will add up over time. The more I pay and the longer I invest, the sooner I will reach financial freedom.

I built a portfolio of about 20 stocks in the UK, mainly FTSE 100 blue chips. Fortunately, they should pay me increasing dividends as companies increase shareholder payouts. Also, I have to get the share price growth higher.

BAE Systems provides revenue and growth

One of those stocks is a defense manufacturer BAE Systems (LSE: BA), which has a strong track record of delivering returns and growth over the years.

BAE's share price has risen 134.4% over five years, and 27.94% over the past 12 months. It has raised the unpleasant realization that Russia and China are now the biggest strategic threat to the West, forcing governments to increase defense budgets.

The AUKUS trilateral security partnership between the US, UK, and Australia has increased demand, as BAE has been selected to co-build Australia's fleet of nuclear-powered submarines. The group has also ventured into new areas, particularly cyber security.

Results for the first half of 2024 posted on 1 August showed sales up 13% to £13.4bn, and operating profit up 5% to £1.3bn. BAE Systems has a relatively low trailing dividend yield of 2.24%. However, the board intends to raise payouts year-on-year and recently increased interim dividends by 8% to 12.4p per share. A new £1.5bn share buyback scheme started in July. BAE Systems has an order book of £74.1bn. I find that very comforting.

Income from 100 FTSE shares

All stocks have risks, even BAE. In the unlikely event that world tensions subside, demand for its shares may decline. Many Western countries are unwilling or unable to increase defense spending, as aging populations stretch budgets. ESG activists are also putting pressure on the arms sector. But in an uncertain world, I want BAE Systems in my portfolio.

The average long-term total return from the FTSE 100 is approximately 7% per annum, assuming all earnings are reinvested. By buying individual stocks instead of trackers, I hope to improve that annual return by, say, 9% per year.

Building retirement wealth is a lifelong endeavor. If I invested £250 a month over a period of 40 years, and increased my contribution by 5% a year, I would end up with £1,992,201. This is assuming I hit 9%.

If I took 4% of that as income each year, a figure known as the 'safe withdrawal rate', I would get a second income of £79,688 a year. Now that's pretty cool, if you ask me. Best of all, I won't have to lift a finger to find it. FTSE will do its best, leaving me free to enjoy my retirement. That gives me real motivation to stick with it.