Do these 3 things now or live on a State Pension of just £8,546 a year

These three small steps could give you 30 years of retirement pleasure, says Harvey Jones.

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.

Happy retired couple on a yacht

Image source: Getty Images.

Retirement is supposed to herald your golden years, those happy days when you kick back, relax, and live out your allotted span in comfort and ease. The problem is that it’s not easy to relax when you’re living on an income of just £8,546 a year.

That’s what you will get from the basic State Pension, which is currently £164.35 a week. And you will only get that if you have made 35 years of qualified National Insurance contributions. This is less than a third of the average full-time wage of £27,271, not exactly what you would call golden. If you want to add sunshine to retirement, you’d better take action now.

Start saving

Yes, I know money is tight. Wages are scarcely rising. The gig economy is not as cool as it sounds. House prices are off the scale, so are rents. Too many are genuinely be unable to save. However, others can save, yet don’t bother. They fritter their cash away, when they could put it to work. If this is you, why not try an app such as Moneybox. It helps you save every time you spend, by rounding up your purchases to the nearest pound and investing the change.

Ideally, you need cash on instant access worth three to six months of your salary, for emergencies. Then you need to get serious.

Learn to invest

For most people, the best way of building up a retirement pot is to invest in stocks and shares. You can do this either through a flexible self-invested personal pension, known as a SIPP, or by using this year’s £20,000 tax-free Isa allowance. With a pension, you get tax relief on your contributions when you pay money in. With an Isa, all growth and income is tax free when you take the money out. These two tax benefits complement each other nicely.

One more thing. If you are offered a company pension with employer contribution, DO NOT OPT OUT. That way you’re turning down free money. You will regret it one day.

Finally, stick with it

Investing in the stock market can make you much better off. It could even make you a millionaire. However, it will do neither of these things overnight. You have to give it time. This means building a balanced portfolio of stocks and shares, or low-cost passive exchange traded funds (ETFs), and leaving them to grow for year after year. You can invest cheaply and easily through online platforms such as AJ Bell, FundCalibre, Hargreaves Lansdown, Interactive Investor, and more.

If you don’t know what to buy, a simple tracker such as the SPDR FTSE UK All Share ETF might be a good place to start. Alternatively, or a global tracker such as the Vanguard FTSE All-World UCITS ETF could be the only investment you’ll ever need. Once you get the hang of it, you need to keep going, regularly topping up your portfolio pot for 10, 20, 30 or 40 years. Do that and you should be able to look forward to a golden retirement. Do nothing and, well, how does £8,546 a year a sound?

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 considered so you should consider taking independent financial advice.

harveyj 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

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

1 dividend stock with a juicy yield to boost returns!

This Fool likes the look of this dividend stock to boost his passive income stream and explains why he would…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Here’s 1 growth stock primed for long-term growth and returns!

Jabran Khan is hunting for a growth stock to boost his holdings. Could this financial advisory business be the right…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 FTSE 250 shares I bought for extra dividends

I plundered the FTSE 250 index to find these three cheap stocks with ailing share prices. All three firms pay…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m buying cheap FTSE 100 stocks to boost my passive income!

Buying dividend stocks today could considerably improve the amount of passive income I make. Here are some FTSE 100 stocks…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Am I crazy for buying Royal Mail shares?

Royal Mail shares have collapsed by almost half in 2022. And with group profits falling and strike action under way,…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

2 recession-resistant stocks to buy right now

After the pandemic slump, we're now facing a UK recession. Many are looking for recession-resistant stocks to protect their money.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE 100 stock continues to fall! Should I buy shares?

This Fool takes a closer look at a FTSE 100 quality assurance stock. As the shares continue to fall, is…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Is the Rolls-Royce share price about to surge?

The Rolls-Royce share price continues to fall as market patience wears thin. But could it be on the brink of…

Read more »