No savings at 40? Here are 3 simple steps I’d take today to retire in comfort

Now could be the right time to start planning for retirement.

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.

Having no retirement savings at age 40 could become an increasingly common occurrence. The high cost of living and a lack of affordability buying a house may mean it’s difficult to save for retirement.

While it’s always better to start planning for retirement as early as possible as, that way, compounding can catalyse your nest egg, it really is never too late to start the process. Here are three simple steps that could be worth taking today and that may improve your chances of enjoying a comfortable retirement.

Asset allocation

When planning for retirement, many people simply open a savings account and build a balance within it. While this is a good first step to take, it may not be as productive as investing in the stock market. Shares have historically offered a significantly higher return than cash. This is very evident at present, with the interest rates on savings accounts less than inflation and the FTSE 100 having gained around 12% in 2019.

As such, it may be prudent to build up a savings balance for emergency costs, such as car and house repairs. This may, for example, be equivalent to six months of your net income. Amounts saved above that level, however, would be better off invested in the stock market, I believe. The FTSE 100’s annualised total returns of 9% since its inception in 1984 suggest that shares could boost your overall returns and help you to build a surprisingly large retirement nest egg.

Tax efficiency

When investing in the stock market, it’s a good idea to do so tax efficiently as well. This means investing through a SIPP or a Stocks and Shares ISA is a sound move, since they offer greater tax benefits than bog-standard, online share-dealing accounts.

Over the long run, those tax benefits can really add up. For example, currently you’re only able to earn £2,000 in dividends per year without paying dividend tax. As such, if you intend to use your retirement portfolio to generate a passive income in older age, investing tax-efficiently from the very start may be a highly beneficial move.

Long-term focus

It’s easy to panic at age 40 when you consider you’ve no retirement savings. However, there’s still time to generate a sizeable pot from which to earn a passive income.

Therefore, it makes sense to adopt a long-term view of your investments. Should they fail to generate high returns in a matter of months, for example, adopting a patient attitude to their performance may be the best course of action. The track record of the stock market shows that it’s very cyclical, and its returns are not uniform.

Over the long run, though, it has the potential to generate high returns that may improve your prospects of enjoying financial freedom in retirement.

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.

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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »