According to several surveys, many potential retirees are worried about their State Pensions in retirement.
If you fall into this bracket, today I’m going to explain how you could revolutionise your financial prospects with UK shares and an investment of just £400 a month.
Time to beat the State Pension
If you have State Pension worries, the best way to get around any potential cash crunch in later life is to set up a private pension.
You don’t need to have a tremendous amount of money to do this. Most online stockbrokers allow investors to set up their own SIPP, which is an extremely tax-efficient way of saving for the future.
Indeed, any money contributed to a SIPP is entitled to tax relief at your marginal tax rate. That is 20% for basic rate taxpayers. This means for every £80 you contribute, the government will add another £20, taking the total up to £100.
On top of this, any income or capital gains earned on the money invested inside one of these tax-efficient wrappers is tax-free. These key benefits are what makes SIPPs perfect for investors trying to beat the State Pension.
Investors can own a whole range of assets and investments inside a SIPP. Most online stockbrokers will also let you set up a regular investment plan. These plans allow investors to put away as little as £50 a month (or £62.50 after basic rate tax relief).
Fifty pounds a month might not seem like much at first. However, thanks to the power of compound interest, a small investment like that could grow into a large fortune.
Picking investments
I think buying a basket of UK shares may be the best way to invest SIPP funds. High-quality blue-chip stocks such as Unilever and GlaxoSmithKline have an excellent track record of producing robust returns for investors.
I think this is likely to continue. These companies’ competitive advantages should help them stay ahead of the competition for decades to come. As such, if you want to beat the State Pension, it could be worth taking a closer look at these companies.
Over the past three-and-a-half decades, UK blue-chips have produced an average annual return of around 8%. At this rate of return, my figures show that it would be possible to turn an investment of just £400 a month, or £500 after SIPP tax relief, into a large financial nest-egg.
According to my calculations, £500 a month invested at a rate of return of 8% per annum would be worth £750,000 after 30 years. This would be enough to provide an income of £30,000 per annum in retirement. That is a considerable sum in comparison to the State Pension.
The current rate of State Pension is less than £10,000 a year.
So, that’s how I think just £400 a month invested in UK shares could you beat the State Pension. Over the long-term, thanks to the power of compound interest, this small monthly contribution could grow into a large financial nest-egg removing any worries you may have.