The current full basic State Pension is £168.60 a week, or £8,767.20 per annum. According to various surveys and studies, this meagre amount isn’t enough for most people to retire on.
Even the lowest estimates suggest retirees need around £10,000 as a minimum to live off without encountering hardship. For a comfortable retirement, some surveys suggest they would be satisfied with around £25,000 a year to spend.
With this being the case, today I’m going to explain the two simple, smart financial moves I would make today to double my State Pension in retirement.
Start saving
The first tip is to start saving because, based on the above data, it’s clear the State Pension isn’t enough for most people to live on. The good news is you don’t need to save a vast amount to double your State Pension if you start early and use all of the tools available to you.
According to my calculations, a saver would need a pension pot of roughly £219,180 at the time of retirement to be able to double the State Pension (I should say at this point that these are only back-of-the-envelope calculations and are only intended to provide a savings guide).
The best way to build this pension pot is to open a self-invested personal pension (SIPP). The government provides tax relief at your marginal rate on any money contributed to a SIPP, up to £40,000 per tax year.
So, for example, for a basic rate (20%) taxpayer, to make a gross pension contribution of £1,000, you only need to pay £800 and the government will add 20% basic tax relief of £200.
According to my calculations, a person would have to contribute £400 a month, or £4,800 a year, to build a pension pot of around £220,000 over 30 years at an average annual interest rate of 2%. On the £4,800 contribution, the government will add an extra £1,200 to take the total yearly contribution up to £6,000.
The power of the stock market
This is where my second tip comes in. The best way to build wealth over time is to invest your money. Indeed, the best cash interest rates available on the market today don’t exceed 3%. Meanwhile, over the past decade, the FTSE 100 has produced an average annual return for investors in a region of 7% per annum.
At this rate of return, my calculations show a saver would have to put away just £180 a month over three decades to build a pension pot sizeable enough to double the State Pension. That’s excluding pension tax relief on any SIPP contributions. Including tax relief, the total monthly contribution required is £144, or £33.23 per week. The government will then add £8.31 a week on top of this for a total monthly contribution of £180.
So, what are you waiting for? If you want to double your State Pension in retirement, start saving and investing today.Â