Investing in UK shares is by far the best way Britons can generate long-term wealth. That’s certainly my opinion, and it’s why I’m building a large portfolio of FTSE 100 and FTSE 250 shares.
While stock investing can also be bumpy at times, over a long time horizon (a decade or more) it’s a strategy that’s proved a potentially lucrative one. And following fresh news on how much money I may need to retire, my plan to invest any spare cash I have has taken on greater urgency.
Retirement goals
The amount of money needed for retirement depends from person to person. But the Pensions and Lifetime Savings Association (PLSA) provides a handy idea as to how much I may need to live comfortably when I finish work.
The bad news is that on Wednesday (7 February) the body hiked its forecasts for what it reckons the average single person will need to retire comfortably. The new figures can be seen in the table below.
| Standard of living | Former forecast | New forecast | Y-o-Y change |
|---|---|---|---|
| Minimum | £12,800 | £14,400 | + £1,600 |
| Moderate | £23,300 | £31,300 | + £8,000 |
| Comfortable | £37,300 | £43,100 | + £5,800 |
Making a million
The news illustrates the importance of saving for retirement as early as possible. I’m not just relying on the State Pension to get me through retirement. The age at which I will be able to claim this is set to keep on climbing. And the size of the benefit I will receive may well leave me in financial difficulties.
But I’m not panicking. This is because I have a chance to set myself up for retirement with a solid regular investment in UK stocks.
The long-term average annual return on FTSE 100 and FTSE 250 shares sits at 7.5% and 11% respectively. If this trend continues, I could — with £570 monthly invested equally across these indices — expect to build a healthy nest egg of £1,099,493 over 30 years.
This in turn would give me a healthy passive income of £43,980, which under PLSA assumptions would provide me with a comfortable retirement. This is assuming I would draw down 4% of my retirement pot each year.
Achieving comfort in retirement
I’d seek to achieve this goal by investing in cash-generative businesses with market-leading products, a wide global presence and significant economies of scale. Unilever (LSE:ULVR) of the FTSE 100 is one share with such qualities I actually own today.
Shares like this can be brilliant investments thanks to their ability to generate stable growth. In the case of Unilever, its popular products like Dove soap, Magnum ice cream and Hellman’s mayonnaise remain in high demand at all points of the economic cycle. This enables the firm to raise prices to drive earnings even when times are tough.
Meanwhile, the company’s large geographic footprint (it operates in 190 countries) allows it to grow profits even when localised problems emerge. A leading position in multiple product categories also helps it to thrive even when consumer tastes change and demand for certain goods declines.
While the threat from local, independent brands is rising, shares like this have still proven to be strong wealth generators. And supplemented with riskier, high dividend shares like Vodafone (dividend yield 11%) and Legal & General (dividend yield 8.7%), I could potentially build a brilliant passive income for when I eventually retire.
