I'm reading Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds, in which I found the following quote, in a footnote:
Gay (the poet), in that disastrous year, had a present from young Craggs of some South-Sea stock, and at once supposed himself to be master of twenty thousand pounds. His friends persuaded him to sell his share, but he dreamed of dignity and splendour, and could not bear to obstruct his own fortune. He was then importuned to sell as much as would purchase a hundred a year for life, "which", says Fenton, "will make you sure of a clean shirt and a shoulder of mutton every day." This counsel was rejected; the profit and principal were lost, and Gay sunk under the calamity so low that his life became in danger. — Johnson's Lives of the Poets.
Nowadays, if you wanted to do that, you might invest in bonds or stocks that pay dividends. But how did it work back then? I know wealthy families would have lands that paid dividends essentially as a salary, but how would it work to purchase such a salary? Was it a financial instrument, or what?
The classic route would be to deposit the money in the Bank of England. In the 18th century, the Bank would typically pay depositors 3% per year. This was extremely reliable; the Bank made its money by lending to the British government, and the government was careful to regularly pay its debts. So, if you put 1,000 pounds into the Bank, you'd have a guaranteed income of 30 pounds / year. "A hundred a year for life" would require about 3,300 pounds, give or take.
This seems a little strange to us, because banks no longer pay much interest on deposits. But things were different back in the 18th century. All banks paid interest back then, and some paid quite a lot. Of course, back in the 18th century, bank failures were a real risk -- and bank deposits were not insured! Usually, there'd be a rough correlation between risk and return. So you could get even higher interest rates, for instance with local banks, but then you'd have to accept some risk of the bank defaulting or going bankrupt.
However, with the Bank of England, risk wouldn't really be an issue. The BoE never once defaulted on its payments, despite some serious challenges -- financial panics, wars, the South Sea Bubble, etc. During the Napoleonic Wars, there was a period where they stopped making payments in gold, but everyone accepted that this was an emergency measure and accepted paper and silver instead for the duration. And the deposit income would also be pretty stable, because inflation wasn't really an issue across most of this period.
The Bank of England wasn't the only option, but it was the simplest. It had branches in all major cities in Britain. That said, if you liked, you could also invest in a wide range of stocks and bonds. After the Bank of England, East India Company bonds were another popular investment. (Bonds, not stock. East India stock was very hard to acquire.)
By the way, 100 pounds a year would be a modest but respectable middle-class income. An experienced plumber or carpenter in London could expect to make 3 shillings a day. A skilled tradesman, an artisan or a small shopkeeper might clear a pound a week. In London it would give him a couple of rooms to live in, plus that "clean shirt and a shoulder of mutton"; in the countryside he would have been able to live quite comfortably.