It’s never too late to start saving for the future. So, even if you’ve reached 60 years of age and you’ve got no savings to retire on, now sould be the time to get started.
No savings at 60
The first thing I’d do if I had reached 60 with no pension savings would be to open a SIPP.
Any saver who’s just started planning for retirement at 60 needs as much help as possible. SIPPs can provide an additional leg up for investors. Anyone under the age of 75 can pay into a SIPP, even if you aren’t earning, although contributions are capped at £2,880 in this scenario.
The most significant benefit of using a SIPP is its tax advantages. Any money you put into one of these pots attracts tax relief at your marginal tax rate. That’s 20% for basic rate taxpayers. For every £80 contributed, the government will add another £20, to take the total up to £100.
Higher and additional rate taxpayers can claim back even more on their tax returns. What’s more, any income or capital gains earned on investments held inside one of these wrappers don’t attract tax. This benefit is desirable for higher rate payers.
Start investing
Unfortunately, even though SIPPs can help give your savings a leg up, if you’ve reached 60 with no money put aside for retirement, you might have to work a bit longer. How much longer depends on how much you can save.
For example, a saver who can contribute the maximum of £40,000 to a SIPP every year, could achieve a pension pot of £467k within a decade. That’s assuming a relatively low annual rate of return of 3%.
Meanwhile, a saver who contributes £1,000 a month or £1,250 after tax relief, could build a nest egg of £175k over the space of a decade. According to my calculations, this could provide an annual income of £7,000 in retirement.
To increase the annual growth rate, I’d invest SIPP funds in the stock market. Following this strategy could help any saver improve their retirement prospects.
Over the past three-and-a-half decades, UK blue-chip stocks have produced an average annual return of around 8%. Plugging this figure into the examples above gives the following results. The £1,000-a-month saver could end up with a final pot worth £230k after a decade. Meanwhile, the £3,333-a-month investor could achieve an absolute investment value of £614k.
My figures suggest these values would be enough to generate an annual income of £9,200 and £24,000 in retirement respectively.
The bottom line
That’s the strategy I’d use to improve my retirement prospects immediately. By making the most of the tax benefits available with SIPPs, and the wealth-creating power of the stock market, I believe it’s possible to build a large retirement savings pot in a relatively short amount of time.
