Even though the State Pension has increased for the new tax year, it still stands at just £8,767 per year. That amounts to less than a third of the average income in the UK.
Certainly, retirees may have lower costs than individuals who are still paying for their own home, for example. But even when that is taken into account, the State Pension seems to be woefully inadequate.
With that in mind, here are three simple steps that anyone can take in order to improve their income prospects in retirement.
Cash restriction
While Cash ISAs continue to be highly popular, they lack appeal when it comes to generating a nest egg for retirement. The best Cash ISA rates at the present time are around 1.5%. This is less than the rate of inflation, and means that Cash ISAs are destroying wealth in real terms, rather than creating it.
As such, having a limited amount of capital in cash at any one time seems to be a sound move. Although having cash for emergencies is sensible financial planning, expecting it to improve retirement income in the long run is unlikely to prove correct – especially since interest rate rises are forecast to be modest over the medium term.
Tax efficiency
While investing in the stock market has historically been a sound means of generating improving returns, doing so in accounts that are not tax efficient could be detrimental to an individual’s long-term retirement prospects.
Even though the capital gains tax allowance is £11,700 per year, and the dividend tax allowance is £2,000 per year, those figures may seem somewhat small after investing in shares over a period of many decades. In other words, they could prove inadequate for many investors, and may mean that they end up paying tax on their retirement portfolio.
As a result, opening a Stocks and Shares ISA or a SIPP could be a sound move. They offer significant tax efficiencies versus a share-dealing account, and could boost an individual’s income in retirement.
Value investing
While investing in shares can be challenging at times, it is worth persevering due to the high returns the stock market can offer in the long run. One way of accessing them is to buy high-quality stocks when they trade at low prices. Doing so could help an investor to capitalise on the cyclicality of the stock market, as well as improve their risk/reward ratio.
At the present time, there are a number of stocks that could offer good value for money in the FTSE 100. It has not yet fully recovered from its decline in 2018, which could mean that there are margins of safety on offer across a variety of sectors at a time when the index itself has a dividend yield of over 4%. This suggests that it offers a wide margin of safety for long-term investors who are looking to improve their retirement prospects and boost their income in older age.