It is never too late to start saving. So, if you’ve reached 60 years of age without any pension savings, never fear. As long as you have a strict saving and investment plan in place, you could still build a considerable pension pot before you retire. Today, I’m going to explain how.
Saving and investing
While it’s never too late to start saving, the bad news is that the longer you leave it, the more you’ll have to save every year if you want to retire in comfort. If you can’t afford higher contributions, you might have to work longer.
For the purposes of this article, I’m going to assume a retirement age of 70, which is above the current State Pension age, but those extra three or four years of saving could make a big difference to your retirement pot.
The first step is to work out how much money you will need in retirement. To double the State Pension, I calculate a saver will need to £225,000 saved at the time of retirement. That’ll give a total annual income of around £18,000, including the State Pension.
The best way to reach this target in just 10 years is to invest. Over the past decade, the FTSE 250 has produced an average annual return for investors in the region of 11%. Meanwhile, the FTSE 100 has produced an average yearly return of 7%. A portfolio containing a mix of both of these indexes would have returned around 9% since the end of 2009.
According to my calculations, a saver would have to put away £1,150 a month for 10 years to build a £225,000 retirement pot, assuming an average annual rate of return of 9%. That’s excluding any tax benefits and fees incurred over the decade.
Tax benefits
To make the process easier, I recommend opening a SIPP. These are great because any contributions are entitled to tax relief at your marginal tax rate, which is around 20% for basic rate taxpayers. This means a saver targeting contributions of £1,150 a month would need to put away just £920, and the government will make up the difference.
If you can’t afford £920 a month, the fact of the matter is you might have to work a bit longer. I calculate monthly contributions of just £600 a month would be required over the space of 15 years to build a savings pot worth £225,000. That’s excluding any tax benefits.
Including tax benefits received by investing through a SIPP, my figures show a monthly contribution of just £480 would be required to hit the target, assuming an average annual return of 9%.
The bottom line
So that’s the strategy I’d use to build a healthy savings pot after the age of 60. As my figures above show, it’s relatively straightforward to accumulate £225,000 pension savings in a decade if you’ve a set savings and investment plan in place.