The huge number of clicks that The Motley Fool attracts with articles looking at the State Pension indicate how fears over ‘pensioner poverty’ are rapidly increasing.
Millions of us find ourselves in huge danger of living on the breadline should we ever hang up our workgloves, given that the maximum we can expect from the government is a miserly £164.35 per week. I couldn’t live on it. Could you?
It’s great that more and more of us are wising up to this, and by following these few tips, you could protect yourself from retiring into poverty.
Start early
One way to boost your post-retirement income is to begin investing as early as you can. Seems obvious, right? Maybe so.
But one thing that precludes many people from investing their cash is that they simply don’t have enough left over by the end of the month to make a difference. That couldn’t be further from the truth. As my Foolish colleague Edward Sheldon recently explained, even stashing away just £5 per month can make a big difference to your finances.
Forget about the fads
If you feel that you’re lagging behind in the savings race it may be tempting to try and recover some ground by taking part in the latest investing ‘fad’, i.e. something generating large, quick returns with little effort.
If it looks too good to be true, then it usually is. Take Bitcoin, for example. Sure, if you piled in several years ago and sold up by late 2017, you’d be sitting on some titanic gains. But those investing 12 months ago would now be staring at a sizeable hole in the value of their assets, given the eye-popping drop in the value of the virtual currency last year.
People have learnt little since the ‘tulip mania’ of 17th-century Northern Europe caused many to lose their fortunes. Sure, you may get lucky, but relying on luck isn’t part of a sensible investing strategy.
Ignore low yields
Having said that, one of the most important things to remember when you’re building a retirement warchest is to avoid financial products that yield too little.
In the quest to find a balance between risk and reward, many savers find themselves happy to swallow poor returns for security. But why? If you’re looking to save yourself from poverty in your later years, then investing your funds in a low-risk, cash-based product just won’t cut the mustard.
Let’s look the best-paying cash ISAs. As of today, the best instant-access product on the market is offered by Ipswich Building Society via its Monthly Saver ISA. Those lucky enough to meet its strict eligibility rules can still only enjoy a 1.8% interest rate. But that figure continues to trail inflation in the UK, meaning that the value of your money is actually falling while it’s locked up.
There’s plenty of research outlining how the returns from such low-yielding products trail those of so-called riskier products like shares by quite a margin. By the time you come to retire, these substandard returns can really stack up. Whether you’re a low-risk investor, or the most cavalier player on the markets, there’s no shortage of stocks that can make you a fortune. And this makes equity markets the best place to deploy your spare cash to let you build that comfortable retirement.