Recession-proof your State Pension with a FTSE 100-focused SIPP

The State Pension is supposed to see you through your retirement years in comfort. But it’s been obvious for a while that’s unlikely to be the case. The State Pension isn’t enough for most people to live comfortably on, certainly not to the standard of living to which you’re accustomed. As Covid-19 takes us through an unprecedented recession, what can you do to boost your State Pension and ensure you retire to at least a level of comfort you’d like? I think the answer lies in investing in the stock market.

Taking a long-term approach to investing via a self-invested personal pension (SIPP) could be the best financial move you’ve ever made. By regularly topping up your investments in quality companies and exchange-traded funds, you stand to build a substantial nest egg through the power of compound interest.

Supplement your State Pension with stocks

Studies have shown an individual will need around £10k annually to achieve a minimum standard of living, £20k for a moderate standard of living and £30k to live comfortably. The current State Pension is just over £9,100 a year, which doesn’t even cover a basic standard of living. This reinforces the need to find additional income streams and a good way to do this is by starting a private pension through a SIPP. One benefit of a SIPP is that you can use it to invest your cash in equities, funds or investment trusts. You have complete control over how your finances grow. If that sounds complicated, don’t be alarmed, getting started is much easier than it sounds and long term, the consequences can be life-changing.

When considering which companies to invest in, look for those you think will still be here far into the future. Many FTSE 100 companies are long-standing, making it a good place to begin. By choosing wisely, you can enjoy income from dividends and capital growth, which would compound over time to grow your regular investment. Although many FTSE 100 companies have cancelled or reduced their dividends recently, that’s in response to the pandemic. The stronger businesses are expected to reinstate them once a sense of normality returns. 

Investing £180 a month, with an effective annual rate of 10%, would amount to more than £1m over 40 years, giving  you an annual income of £30k for 33 years. Varying the annual interest rate, amount contributed and period of investment will change your final sum. 

Making the most of a recession

We’ve already slipped into a UK recession and signs of a second Covid-19 wave are very much with us. Panic is setting in, resulting in volatility in the markets. But that shouldn’t put you off. The markets are prone to volatility and dips can be the best time to snap up bargains. Most FTSE 100 stocks fell hard in the March market crash, and many of them made a great recovery.

As a long-term investor, you shouldn’t be concerned with the day-to-day trials of the stock market. This works best when you invest in companies you’re confident have growth and profit potential to withstand the test of time. That’s why I think FTSE 100 companies in a lifelong SIPP are a great way to supplement your State Pension and prepare for a comfortable retirement. The earlier you invest, the better.