If you’ve reached 60 years of age and have no pension savings, then now is the time to take action to build a retirement pot.
The good news is, it’s not impossible to build a sizeable pension pot in the years you have left before retirement, although it will require quite a bit of effort and you may have to work a little bit longer than expected.
So, if you fall into this bracket, here are my three tips to help you make the most of your money.
Open a SIPP
My first tip is to open a SIPP. Any money you contribute to a SIPP is entitled to tax relief up to your marginal tax rate. Anyone under the age of 75 can pay into a SIPP and even if you are not earning, you can contribute up to £2,880 net each tax year and still receive tax relief.
If you’ve nothing saved by age 60 and you want to retire more comfortably, making the most of this tax benefit while you can is vital.
Save, save, save
My next tip is to start saving as much as possible, as soon as possible. Time is the greatest advantage investors, and savers have. And the sooner you start saving, the better because it allows your money to start earning money and the benefits of compound interest to work their magic. The longer you put off saving, the harder it will become.
Invest for the future
My final tip is to invest for the future. You are going to need all the help you can get if you want to build a sizeable retirement pot from a standing start at age 60.
By investing in the stock market, you can boost your returns, but it is not advisable to invest with anything less than a 10-year time horizon. So, if you want to squeeze as much money as possible out of the stock market, you might have to delay your retirement date.
If you can, it is certainly worth doing this. Over the past decade, the FTSE 250 has produced an average annual return for investors in the region of 9%. The FTSE 100 has returned an average of 7% per annum over the same time frame.
Assuming an annual growth rate of 9%, I calculate it would take contributions of £2,000 a month (or £2,500 including tax relief) to build a pension pot worth nearly half a million pounds over the space of 10 years. This is enough to produce an annual income of £20,000 or approximately £28,550 including the State Pension.
At a rate of 7%, you could build a similar sort of retirement pot with contributions of £2,700 a month.
If you are willing to take on a bit more risk, it is possible to build a much larger savings cushion, although I should caution that this is not guaranteed.
Some active small-cap investment funds have returned low-teens annual gains during the past few years. If you can achieve a rate of return of 12%, for example, that would be enough to turn monthly contributions of £2,500 into a pension pot worth nearly £600,000, enough to give you an annual income of £24,000 excluding the State Pension in retirement.
