Huge uncertainty over the future of the State Pension means that investing in UK shares is essential. At least in my opinion. Annual pension increases have failed to keep pace with the cost of living in recent years as the government has struggled to finance Britain’s growing elderly population. The economic consequences of Covid-19 mean that conditions are likely to get more difficult for British pensioners now and in the future, too.
It’s clear that relying on the government to take care of us in our old age is dangerous business. Saving for retirement is essential but this is unlikely to be enough on its own. Putting your money in a cash account like a Cash ISA is unlikely to provide much financial protection, either. Interest rates of around 1% aren’t even keeping pace with the rate of inflation.
Retiring rich with UK shares
But enough of the bad news. Our job at The Motley Fool is to “provide a variety of solutions to improve many areas of your financial life”. And our belief is that buying UK shares and holding them for the long term is a great way to achieve financial freedom and retire in comfort.
History shows that stock investing offers the sort of reliable – and high returns – that you and I need to retire rich. Those that buy UK shares and hold them for 10 years or more make an average annual return of 8% to 10%, studies show. And these proven rates of return mean we don’t have to spend a fortune to make big investment profits, either.
Let’s say you begin preparing for retirement at the age of 25 by buying just £100 of UK shares a month. If you continue doing this up to the age of 65 you’d likely have made between £322,000 and £555,000. That’d be more than enough for you to live the life of Riley in retirement. You could even choose to take early retirement, too.
No savings at 40? This is what I’d do
Okay, I realise that for many of our readers the chance to beginning saving at 25 has passed. That doesn’t mean that you can’t still build a terrific pension pot, though. Let’s say that you’re 40 and can afford to invest £200 each month in UK shares. Based on those proven rates of return you can expect to have made between £182,000 and £247,000 by the age of 65.
The 2020 stock market crash has deterred many from taking the plunge with UK shares. But I’d implore you not to fall into that trap. The crash has created a wealth of opportunity for you and me to get rich by buying quality UK shares at low cost and then selling them at a high mark-up later down the line. And The Motley Fool’s packed library of detailed articles and exclusive reports can help you on your quest to retire rich.