It’s no good burying your head in the sand. If you have no savings by the time you’re 40 you really need to get moving.
It’s not time to panic. You still have around a quarter of a century to build that big retirement fund you’ve always dreamt of. And you’re not likely to be alone. You need to be proactive though, and once you’ve checked the official State Pension website to tell you when you can expect to receive government benefits and how much to expect in your pocket, it’s time to come up with a sound investment strategy.
Steer clear of the low yielders
One thing is clear: if you find yourself with no savings and just 25 years to planned retirement, you have to be prepared to take a little risk with your savings.
That’s not to say you should play Russian roulette via extremely speculative investments such as Bitcoin, however. You still have a quarter of a century to build up that pension pot and so there’s no reason to act rashly.
On the other hand, while locking your funds in a low-yielding, cash-based account may protect you from losing most (or all) of your money, these products are unlikely to protect you from pensioner poverty.
Good… but good enough?
Let’s look at the best-paying instant cash ISA currently on the market, the 1.55% AER HiSAVE product offered by ICICI Bank. Rates of course are likely to change many, many times by the time you come to hang up your work gloves, but for illustrative purposes, say you had £300 a month to set aside in this product, over the course of 25 years that would give you a nest egg worth around £110,000.
This is a better return than if you were to stick that monthly sum under your mattress each and every time, a strategy that would give you £90,000 to live off in retirement.
Both amounts are better than a punch in the face, sure. But would they allow you to pursue the life of luxury that you’d always envisioned for your retirement? Perhaps not. What is certain, though, is that after 25 years of possibly scrimping and saving I’d want to have generated a bigger lump sum.
A better way to invest
And it’s perfectly possible to create a much-chunkier cash pot. Let’s say you were to put that £300 to work through a stocks and shares ISA and earn an extremely modest 8% per year on that. By the time you’re 65 you would have created a cash chunk just a shade off of £273,000, more than double that which you would have generated had you stashed that monthly sum in the aforementioned cash ISA (or three times the sum which you would have achieved if you stored it under the bed!)
Of course generating such bountiful returns is no guarantee, and fluctuations in the stock market mean that you may end up with less than you’ve put in. It’s worth remembering, though, that time and again, share investing has proved to be the best way to put your excess capital to work as, over the long-term, the impact of those blips is more often than not ironed out. And there’s plenty of sage advice out there to help you on your quest for retirement riches.