How you can double your State pension by investing £10 per week in FTSE 250 shares

The FTSE 250 (INDEXFTSE:MCX) could offer the chance to boost your retirement income.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since the State Pension amounts to £8,767 per year, it is unlikely to provide the level of financial freedom that retirees deserve. In fact, it is unlikely to be sufficient to pay for all of life’s necessities, never mind discretionary spending in older age.

As such, building a nest egg that can provide a passive income in retirement is crucial for anyone who wishes to have a generous income in older age. Although that may not sound like an easy process, it is possible to more than double your State Pension by investing £10 per week in FTSE 250 shares over the long run.

Return potential

The FTSE 250 is sometimes overlooked by UK investors. They often focus on the FTSE 100 due to its international exposure and the fact that it is made up of the largest listed companies in the UK.

However, the FTSE 250 is still heavily influenced by the world economy. Around half of its members’ income is derived from outside the UK, while its track record of growth suggests that it could be a better means of building a nest egg than investing in the FTSE 100.

In fact, over the last 20 years, the FTSE 250 has recorded an annualised total return of 9%. Assuming the same level of growth in future, you may not need to invest significant sums of money in order to build a nest egg that can provide an income in retirement which beats the State Pension.

Nest egg

For example, investing £10 per week over a period of 45 years would produce around £273,000 assuming a 9% annualised return. From this, withdrawing 4% per year would lead to an income of nearly £11,000. This is ahead of the State Pension, while a 4% withdrawal is often viewed as an amount which is sustainable in terms of it not eating into your capital. The FTSE 100, for example, currently yields over 4% and could prove to be a worthwhile destination for a retirement fund once a passive income is required.

The FTSE 250, though, provides the capital growth potential to build a nest egg during your working life. Clearly, investing more than £10 per week could lead to a significantly greater retirement fund. However, the example serves to show that even modest amounts of capital can lead to large sums of money in the long run when compounding takes effect.

Accessibility

Buying FTSE 250 shares has never been more cost-effective or simpler. It is possible to open a share-dealing account in minutes, while regular investing services reduce commission costs.

Some investors, of course, may be able to outperform the FTSE 250’s long-term returns through buying undervalued companies. Since the index currently trades below its record high and investor uncertainty has been building over recent years, now could prove to be the right time to start building your nest egg with FTSE 250 shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »