So, you’ve hit 40 or flown past it, and life’s been good, right? But maybe you’ve been enjoying yourself so much that you’ve neglected your savings. Are you starting to worry about how to finance your fast-approaching retirement?
Don’t worry too much. You’re here now, and I’m going to suggest something that you can do right away to get back on track.
Did you know that investing in shares or share-based investments is a well-trodden path to building retirement wealth? Over the long run, the total investor returns from shares have outperformed all other major classes of assets. That’s why pension funds stick so much money in the stock market and it’s why we are such big fans of shares right here at The Motley Fool.
Here are the three steps I think you can take right now to get on the road to building up that retirement nest egg you hanker after:
1 Save regularly
My Foolish colleague Roland Head did a bit of research recently and concluded that if you want to save £1m starting from the age of 40, you need to save £1,254 per month starting immediately. He assumed an annual average rate of return of 7% from investing on the stock market with the money.
But saving more than £1,000 per month starting right now is a big ask, especially when you haven’t yet developed a regular saving habit. And do you need a million pounds in savings to enjoy your retirement? Don’t forget you’ll get The New State Pension when you retire, which today works out at £8,546 per year. So your savings in retirement need to be able to support a topping-up income and you may not need as much as a million in funds to do that.
Could you commit to saving half of Roland’s figure, say £627 per month? Still too much? Okay, let’s start you off at £300 per month. If you save that, you’re off to a good start and it will make a big difference to your income in retirement.
2 Invest
Make sure you pay into your savings every month, perhaps by a standing order from your bank account so that it can’t be overlooked. Then choose your investment vehicle, such as managed funds, individual shares or passive index tracker funds.
It pays to consider sheltering your investments inside a tax-efficient wrapper such as a company pension scheme if you have access to one, a personal pension, a Self-Invested Personal Pension (SIPP) or a Stocks and Shares Individual Savings Account (ISA).
If you want to find out all about regular investing on the stock market, you’ve come to the right place here at The Motley Fool. So do hang around and tune in to the regular free articles, and have a good rummage around the website. I’ve certainly learnt a lot myself over the years by doing just that.
3 Review
Finally, review your retirement savings and investments regularly with the aim of increasing the amount you save each month to reflect your rising income over the years. The more you save and invest, the bigger your retirement pot will potentially become. Good luck, and do get going straight away