Around one in six Britons aged 55+ currently have no pension savings. This is according to research from unbiased.co.uk, which surveyed 2,000 adults across the UK.
Having zero pension savings at 55 is not a great situation to be in financially. However, by acting quickly, there’s still time to build up a substantial savings pot for retirement.
With that in mind, here’s how I’d aim to build up a £300k pot, starting at age 55.
The first step
Assuming I didn’t already have any pension accounts open, the first thing I’d do is open one with a reputable provider.
I’d go for a Self-Invested Personal Pension (SIPP), as these accounts give owners full control of their money, and also offer access to a very wide range of investments.
Next, I’d work out how much I’d need to save a month to hit my goal of £300k, and start saving.
Now, let’s say I wanted to retire at 67 (the State Pension age by the end of 2028). And let’s say I could generate a return of 8% a year on my money over the long term (more on this below).
Given these assumptions, I calculate I’d have to contribute around £11,760 every year (around £980 a month) into my pension account over the 12-year period.
Note that this factors in tax relief. If I was to put in £980 every month, the government would add another £245 on top (assuming I was a basic-rate taxpayer).
Of course, £980 per month is a lot of money. So I’d have to make some sacrifices.
Achieving 8% a year
As for how I’d aim to generate an 8% return per year, I think I could achieve this with a balanced portfolio of stocks within my pension.
Over the long term, the stock market as a whole has returned around 7-10% a year for investors. So an annual return of 8% should be achievable over time if I put a solid strategy in place.
To start my portfolio, I’d invest in a global tracker fund, such as the Fidelity Index World. This would give me exposure to thousands of stocks (including well-known companies such as Amazon and Tesla) at a low cost and provide a solid foundation for my portfolio. Over one and five years, this tracker fund has returned 8% and 57% respectively.
Then, as my portfolio got bigger, I’d add some actively-managed investment funds and individual stocks in an effort to boost my returns. By adding in funds and stocks that are poised to benefit from powerful long-term trends, such as the world’s ageing population, the shift from cash payments to electronic transactions, and the growth of artificial intelligence (AI), I might be able to get to my goal faster.
For example, if I was to identify and invest in ‘the next Apple‘, I could see my returns increase significantly. Over the last decade, it has turned a $5k investment into more than $50k.
Now there’s no guarantee that this approach to investing would actually achieve my target of 8% a year, of course. The stock market can be unpredictable at times. My investments could underperform, sometimes badly.
However, history shows that there are few better wealth creation machines. So I’d be willing to take my chances.