If you have reached 50 years of age with no pension savings, time is of the essence. While it’s always better to start saving for the future sooner rather than later, life can get in the way. The good news is it’s never too late to start saving for the future. With this in mind, I’m going to outline my three tips to help you double your State Pension in retirement.
Setting a target
I calculate a saver will need around £215,000 to double their State Pension. Once you know how much you have to save, it’s much easier to compile a plan to hit this target.
So putting together a savings plan is my first tip. Once you have this roadmap, saving for retirement won’t seem so daunting, and it’ll be easier to make sure you are saving enough every month. My figures tell me that, from a standing start, a saver would need to put away £1,050 a month to be able to double their State Pension from age 50 (assuming a retirement age of 67).
Investment plan
My second tip is to invest any money saved. I recommend a low-cost FTSE 100 passive tracker fund as the best way to do this. Over the past decade, an investment in the FTSE 100 has produced a total return for investors of around 7% per annum.
Assuming this rate of return continues, I calculate the total amount a saver will need to put away every month will drop to £550, if this money is invested in the FTSE 100. That’s a big reduction in savings for such a small change.
Most low-cost investment platforms today offer a regular investment plan, which allows users to invest as little as £25 a month into stock and bond funds — a great tool to use if you don’t know where to start.
Tax breaks
My third and final tip is to make the most of tax breaks currently available to pension savers. If you haven’t accrued any pension savings by the time you hit 50, you’re going to need as much help as possible to build a comfortable pension pot by the time you decide to quit the rat race.
SIPPs offer tax relief of a basic rate of 20% on any contributions. The actual amount you’ll receive will depend on your marginal tax rate, so it’s always worth checking beforehand. However, at the basic rate of 20%, for every 80p contributed, the government will add a bonus of 20p to take the total contribution up to £1. On this basis, just £440 of contributions per month are required (assuming the money is invested in the FTSE 100).
The bottom line
All in all, if you have put off saving for the future until 50, there’s no need to worry. Investing your money will help you build a substantial pension pot in relatively little time.
If you’re willing to take on more risk, you could invest in the FTSE 250, which has produced more significant returns over the past decade. This index has returned around 10% per annum during the past 10-years. At that rate of return, I calculate contributions of just £320 a month would be needed after tax relief to hit the £215,000 target.