For investors seeking a healthy retirement income, I think a Stocks and Shares ISA is hard to beat. And I’d say the FTSE 100 contains some of the world’s best long-term income opportunities.

US stock markets usually come out tops for growth. But over there, a stock like Starbucks is considered a decent dividend buy — with a yield of just 2.7%.

London-listed global banking giant HSBC Holdings (LSE: HSBA) has a forecast dividend yield of 5.7% — and that’s even after the share price has trebled in five years. Picking a US bank at random, I see Wells Fargo offering only 2%. I’ll go for UK shares for income every time.

What kind of long-term income could a full ISA contribution limit of £20,000 invested in HSBC build up to?

Diversification

Investing in the stock market carries risk. And if we want to see a sector that’s suffered badly from that, we need look no further than the banks. Anyone invested solely in the banking sector over the past 20 years might have had to spend money on paracetamol to help get through it.

For that reason, I’d never put all my money in a single stock, or a single sector.

Diversification is what we need. Diversification between sectors, and among stocks in a sector. That, to me, is an essential. HSBC is definitely on my candidates list, although only for a well-varied ISA. But with that in mind, there’s no reason we can’t use it as an example.

Dividend prospects looking good

Right off the bat, a £20,000 investment in HSBC could earn £1,140 from its first year of dividends. Admittedly, dividends aren’t guaranteed. But at FY24 results time the company was positive about its dividend prospects. And a new $2bn share buyback should help boost future per-share payments. Analysts also see the HSBC dividend growing 15% by 2027 following on from 2025’s forecast payout.

Poor economics, especially in the China region, could knock HSBC’s future dividends back. And banks always seem to suffer in any downturn, no matter what starts it. But right now, I think I’d place HSBC’s dividends among the more dependable in the FTSE 100.

The magic of reinvesting dividends

An investor can potentially build up their returns substantially if they buy more shares with their dividend cash. In this example, the second year’s income should be a bit higher at £1,205… and it would creep up as each year’s reinvested dividend earns its own extra bit of income.

After 20 years, those HSBC dividends could be enough to more than treble the initial £20k investment to reach £60,600. And the same dividend yield could then pay £3,450 per year income. Now think about investing every year rather than just a one-off.

What we might actually achieve depends on a number of things. But the FTSE 100 has posted an average return (including share price moves and dividends) of 6.9% per year over the past 20 years. And Stocks and Shares ISAs have hit a 9.6% average in the past decade.