For a large number of retirees, the State Pension isn’t going to be sufficient to enjoy a good standard of living. It currently amounts to £8,767 per year, which is less than a third of the average UK salary.
As such, many who aren’t yet retired may be concerned about their long-term financial prospects. That’s especially the case since the State Pension age is due to rise to 68 over the next few decades.
While all this may be disconcerting, it’s never too late to start building a retirement nest egg. Doing so with a Stocks and Shares ISA could make it easier to generate a generous passive income in retirement, or even make a million over the coming years.
Getting started
While investing in the stock market through a Stocks and Shares ISA may sound complicated, in actual fact it’s a relatively simple process. There are a variety of ISAs available, with their costs often highly competitive. This makes them accessible to a wide range of investors, with commission charges having fallen significantly as online sharedealing has become more popular.
Once opened, a Stocks and Shares ISA offers access to a wide range of assets. Since no tax is payable on any income or profit earned within an ISA, your portfolio’s valuation may rise at a faster pace than it otherwise would from investing through an online sharedealing account. As such, persisting with a Stocks and Shares ISA in the long run could be a worthwhile means of improving your chances of making a million.
Investing for the long term
While there are a variety of risks facing the UK and world economies at present, there are also a wide range of opportunities to generate sizeable total returns. For example, the FTSE 100 has a relatively high yield of 4.6%, which suggests it offers good value for money. And, with much of the index internationally-focused, it could produce high returns as economies such as India and China continue to grow at a fast pace.
Therefore, starting today and continuing to invest over the long run in high-quality stocks could increase your chances of building a nest egg for retirement. Although there may be downturns and recessions ahead, holding a diverse range of stocks means there’s a good chance they will ultimately recover. In fact, the FTSE 100 and FTSE 250 have always recovered from bear markets to post higher highs.
Asset allocation
While it’s tempting to invest only a small part of your spare cash in the stock market, it may be worthwhile to make a Stocks and Shares ISA your main vehicle for retirement saving. The returns on Cash ISAs and Premium Bonds are exceptionally low, and are unlikely to outpace inflation over the long run. Therefore, they have a much lower chance of producing a £1m+ nest egg in the long run.
Of course, it makes sense to have some cash on hand in case of an emergency. But for investors who have a long-term time horizon, focusing on assets such as shares that can produce higher returns, could provide a better chance of overcoming the State Pension in retirement.