The weekly payout from the State Pension is low at just £164.35. This equates to a yearly sum of just £8,546.20 which as I’ve written before, is not really enough to provide a comfortable standard of living in retirement.
However, if you’re approaching retirement and concerned about trying to survive on the low State Pension payout, there are things you can do now, that could help you boost your income in your golden years.
Today, I’ll show you how you could potentially double your retirement income with the help of dividend-paying investment trusts.
What is an investment trust?
An investment trust is a publicly-listed company that is designed to generate profits for its shareholders by investing in a whole portfolio of other companies. Investment trusts can be bought and sold just like regular shares through a broker.
There are many advantages putting your money in investment trusts. For starters, they can be a great way to access the stock market if you don’t want to pick stocks yourself – your money is managed by a professional fund manager. Second, they also provide instant diversification, because your money is spread out over many different companies. Third, they’re generally quite cost-effective, as most have very low fees.
Furthermore, another key advantage of investments trusts is that they can be a great income-generating tool as many pay their shareholders cash dividends on a regular basis. Which brings me back to the State Pension. If you’re concerned that you won’t be able to live off that in retirement, investment trusts could be an excellent way to boost your income.
Regular cash payments
One example of an excellent dividend investment trust is the Merchants Investment Trust (LSE: MRCH). Established in 1889, this mainly invests in large, well-known FTSE 100 companies with the aim of providing investors with high income, plus income growth and some long-term capital growth. Currently, its top three holdings include GlaxoSmithKline, Royal Dutch Shell and HSBC. Impressively, the trust has increased its dividend for 35 consecutive years now. Last year, Merchants paid its shareholders 24.8p per share in cash dividends which at the current share price, equates to a yield of 5%.
So how could that kind of yield boost your retirement income? Let’s look at some examples, assuming the investment trust was held in an ISA and the dividend income was, therefore, tax-free.
The table above shows that with an investment of just £170,924 in MRCH, you could receive dividend income of £8,546 per year, which, when combined with the State Pension, would mean your retirement income would be double that of the State Pension.
Of course, this is a simplistic example. It’s important to remember that dividend income from shares is not guaranteed. Furthermore, as with any other stock market investment, the value of the fund could also decline. In reality, it would be wise to diversify your capital among several different investment trusts to spread your risk. However, the message is clear: dividend-paying investment trusts can be a great way to boost your retirement income.
With the State Pension payout less that £165 per week, it’s no surprise that many people are worried about the future. However, if you act now, and consider ways to boost your income, there’s a good chance you can salvage your golden years and live a more comfortable retirement.
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Edward Sheldon owns shares in GlaxoSmithKline and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended HSBC Holdings. 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.