Worried about the State Pension? This strategy could boost your retirement income 25%

The State Pension is just £8,767 per year. This simple strategy could generate another £2,000 per year for you in retirement.

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If you’ve looked into the details of the State Pension, you’ll know that it’s not a lot of money. At just £168.60 per week or £8,767 per year, it’s not really enough to live on.

Yet many people do end up trying to live off the State Pension and struggle through retirement, simply because they’ve no retirement savings. According to recent research from Equiniti, around 25% of single pensioners are currently living off State Pension payments alone.

If the thought of trying to survive on less than £170 per week in retirement worries you, it’s a good idea to do something about it sooner rather than later. With that in mind, here’s a look at a simple strategy that could boost your retirement income by 25%.

An easy way to generate extra income

One of the easiest ways to generate a little extra income in retirement is through income-focused investments trusts. These are investment funds managed by professional portfolio managers (meaning you don’t need to worry about picking stocks yourself) and generate steady income by investing your money in large, well-known companies that are listed on the stock market.

Here in the UK, there are a number of investment trusts that pay high levels of income and have excellent long-term track records. For example, three that I believe are well suited to retirees are the City of London Investment Trust, the Murray Income Trust, and the Merchants Trust. These are all listed on the London Stock Exchange, meaning you can buy them through an online broker such as Hargreaves Lansdown.

All three have been around for a long time (the Merchants Trust was founded in 1889!) and all have excellent track records when it comes to paying their investors regular income, or ‘dividends’. All three also offer high dividend yields right now. For example, Merchants Trust currently yields 5.4%, while City of London and Murray Income yield 4.3% and 3.9%, respectively. The average yield between them is a healthy 4.5%.

Boosting your retirement income by 25%

So, how much money would you have to invest if you were looking to generate income of £2,191 per year (25% of the State Pension) in retirement?

Well, according to my calculations, if you put together a portfolio that consisted of these three investment trusts, you would need a total lump sum investment of around £48,700 to generate annual income of £2,192. Assuming these trusts were held in a Stocks & Shares ISA, the income would be tax-free.

In other words, with an investment of less than £50,000 you could potentially boost your retirement income by 25%. So you’d be looking at a total income of £10,959 per year, as opposed to just £8,767 from the State Pension alone. That could certainly make a difference to your lifestyle.

Of course, building up a lump sum of £48,700 in the first place is likely to be challenging for many. However, with a little advanced planning, it’s certainly possible. The key, as always, is to start saving as soon as possible.

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.

Edward Sheldon owns shares in City of London Investment Trust, Murray Income Trust, and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

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