Having no pension at 50 isn’t ideal from a retirement planning perspective. However, it’s also not the end of the world. By acting quickly, there’s still time to build a savings pot of £500k or more for retirement. Here’s a look at how I’d go about trying to do this.
Starting a pension
If I had no pension, the first thing I’d do is open one. I’d go for a Self-Invested Personal Pension (SIPP) from a reputable provider such as Hargreaves Lansdown, AJ Bell, or Interactive Investor.
This type of pension account allows full control over what’s invested. And ongoing costs are generally quite low.
Once my account’s open, I’d start contributing to it immediately.
Now the beauty of putting money into a pension is that contributions come with tax relief. The amount of tax relief available depends on an investor’s tax bracket. However, for basic-rate taxpayers, it’s 20%.
This means contributing £800, the government adds another £200 on top, taking the total contribution to £1,000.
This tax relief could boost my retirement savings significantly, helping me get to my £500k goal much faster.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Putting my money to work
Finally, I’d put my money to work by investing in the stock market.
Over the long term, the stock market has historically provided returns of around 7-10% a year for investors. That’s a much higher return than savings accounts have generated.
As for my investment strategy, I’d take a diversified approach.
First, I’d invest in a global tracker fund, such as the Vanguard FTSE Global All Cap Index. This would provide me with exposure to thousands of stocks for a very low annual fee.
Then I’d add in some actively-managed funds for growth. Fundsmith Equity is a good example of the type of fund I’d invest in here. It has an excellent long-term track record, having produced double-digit annual returns for investors over the long run.
Finally, I’d buy some individual stocks for my portfolio. Here, I’d focus on high-quality growth stocks that have the potential to outperform the market over the long term, such as:
- Alphabet (the owner of Google and YouTube)
- Diageo (the owner of Johnnie Walker, Smirnoff, and Tanqueray)
- Visa (the electronic payments network operator)
- Rightmove (the owner of the most popular real estate portal in the UK)
By taking this diversified approach, I should be able to achieve a return of 8% a year over the long term, although this kind of return isn’t guaranteed, of course.
How much would I need to invest?
As for how much I’d need to invest to build a portfolio worth £500k by retirement, I calculate that if I was starting at 50, I’d need to save around:
- £1,140 a month to hit £500k by 65
- £920 a month to get to £500k by 67
- £830 a month to reach £500k by 68
These calculations assume an 8% return over the long term (which isn’t guaranteed) and that tax relief of 20% is provided every year (it may not be in the future).
Obviously, saving this amount of money every month would take some discipline. However, I think it would be worth it in the long run.