The State Pension is nothing to write home about. At £168.80 per week, it’s barely enough to keep you fed and clothed, never mind sheltered and warm. So if you have ideas about your care-free retirement days being spent on adventurous holidays, indulging in weekends away, theatre trips and dining out, you’ll need to find a way to top up the State Pension with additional income streams.
Thankfully, it’s not as unachievable as it may seem and the younger you start planning for retirement, the better your chances of achieving your dreams.
Financial forecasting
Investing a lump sum of £10k today, followed by £250 a month over four decades, could help you realise a very comfortable retirement. Investing this in an index fund with an average annual return of 6% would result in a final pot worth over £609k. This equates to an annual income of £30k for 20 years.
Alternatively, you could achieve this same lump sum, by investing for 30 years at a 9% average annual return.
The average annual return for the FTSE 100 index has been close to 7% for the past decade and it’s been over 11% for the FTSE 250 index. Although past performance does not guarantee future performance, these results show that achieving 6% or even 9% annual returns is not an impossible feat. Investing in an index tracker can be a simple and effective way to save regularly for a prosperous future.
Retirement planning
The length of an individual’s retirement is obviously unknown, which makes income planning harder, but UK life expectancy is 82 years and the average individual will work until 67, so a 20-year savings plan should be enough. If you want to retire young, then you must plan accordingly.
I think £30k a year on top of your State Pension should be plenty of money to provide a comfortable standard of living with additional luxuries for any individual.
Saving in a SIPP
A Self-Invested Personal Pension (SIPP), provides a simple way for you to take control of your pension savings. It’s as easy as accessing your online bank account and gives you the ability to buy stocks or funds, while gaining a government contribution equivalent to your marginal tax rate.
Actively managing your own investments can be a daunting experience, but it can be liberating to have control over the health of your future wealth.
But what if you’ve left it too late? Well, you’re never too young to invest for your future, and the younger, the better. But equally, you’re never too old. Those of us aged 40, 50 or even 60 still have enough years to build up some sort of pot to boost our State Pensions. And investing your hard-earned cash in the stock market can be a great way to compound its value to grow to be worth much more than if you’d simply saved it as cash.
With people living longer and the UK population growing, pressure on government funds is increasing. This means the State Pension is unlikely to improve and the more you can do to take responsibility for your own financial future the better, at whatever age.