The FTSE 100 has historically proven to be a dependable source of solid investment returns. Even a modest sum of capital can grow at a far superior pace to other savings instruments.
And for those in their 50s worried about retirement, investing in the UK’s largest businesses may help alleviate some of the financial pressure and establish a steady income stream at the same time.
Even with the index recently reaching new record highs, plenty of its constituents are trading below 2021 levels. In some cases, this may be justified, but buying opportunities may be available in others. And buying shares in top-notch enterprises at low prices is a proven recipe for success.
So, with all that said, let’s look at how 50-year-old investors could bolster their retirement savings, even when starting from scratch.
Building a retirement nest egg
In recent decades, the FTSE 100 has achieved an average total return (capital gains + dividends) of around 8% per year. It’s not the greatest growth rate compared to other indices. For example, the average return of the FTSE 250 is closer to 10.6%. However, the reduced performance comes with far more stability.
Just look at what happened during the 2022 stock market correction. Throughout the 12-month period, the FTSE 250 dropped by as much as 30%! Meanwhile, the FTSE 100 was basically flat. And for an individual approaching retirement, stability is often more desirable.
On average, most people retire at the age of 65. So that leaves a solid 15 years of compounding to build up a retirement fund when starting at 50. Allocating £750 a month for pension investing at an 8% annualised return would lead to a portfolio worth roughly £259,530. That’s more than double the UK average of £107,300, according to the Office of National Statistics.
And assuming the index continues to payout an average 4% dividend yield, this portfolio would generate an annual passive income of £10,381 per year. That’s not groundbreaking, but when combined with the roughly £9,630 State Pension, it can lead to a more comfortable retirement.
Even the FTSE 100 has its risks
As stable as the UK’s flagship index has historically been, it doesn’t make it a risk-free guarantee of returns. Some 15 years is plenty of time for another stock market crash or correction to rear its ugly head. And while these events will naturally resolve in the long run, depending on their timing, investors could have significantly less money in the retirement fund than expected.
Furthermore, there’s also no guarantee that the State Pension will stay at current levels. And depending a desired lifestyle, the two pension pots combined may be insufficient.
Nevertheless, investing in strong British businesses can bolster wealth far quicker than most alternative investing vehicles. While the stock market can be a more volatile place than fixed-income bonds, it may be the key to achieving a more enjoyable retirement.
