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State Pension worries? I’m buying UK shares in a Stocks & Shares ISA to retire in comfort

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It didn’t command a lot of attention in the press. But a key date last week illustrated the shortfalls of the State Pension, and how important UK shares can be in helping you to retire in comfort.

Ever heard of the State Pension Shortfall Day? This is the day on which the average retired single person will have already spent income equivalent to the full annual State Pension. And according to financial services giant Just Group this fell last Wednesday (September 16th). After this date UK retirees would be reliant on other sources of income to survive.

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Things are even worse for retired couples. According to Just Group the State Pension Shortfall Day came even earlier this year, on Saturday September 12th.

State Pension pains

Just Group’s analysis shows how important it is for Brits to save or invest for the future. Average spending for a single person retired household comes in at £12,766 per year, according to official figures. Yet the full annual State Pension comes in at £9,110. This means pensioners need to plug a gap of £3,656.

Things are even worse for retired couples. Two State Pensions create an annual income of around £18,221. However, average expenditure for a two person retired household sits at £25,932. This creates a combined gap of £7,712.

It’s clear that you and I need to take action to protect our future selves in retirement. But what’s the best way to build a nestegg for retirement? A Cash ISA or a Stocks and Shares ISA?

Retirement saving and pension planning

Getting rich with UK shares

For me there’s no debate. And let me provide some numbers to back this up. Let’s say you’re able to save £200 a month in a Cash ISA every month for 30 years. You’ll have made a retirement pot worth around £83,200 (based on the best-paying account of today from Coventry Building Society).

It looks like a decent amount on paper. But drill down and it’s clear that these savings won’t protect you from a poor State Pension for that long. Based on that current shortfall you’ll have burnt through that cash after just over a decade.

Now let’s compare that 83-odd grand with what Stocks & Shares ISA investors could make instead. The average annual return enjoyed by long-term investors in UK shares sits at 8% to 10%. This is much better than the 0.96% interest rate that Coventry Building Society offers on its Cash ISAs. And it also means that someone investing just £200 a month in UK shares stands to make at least £281,700 after 30 years.

Protect yourself today

It’s clear that saving in a Cash ISA won’t protect you for long in retirement. This is why I only use mine for holding emergency cash, and instead invest in a Stocks and Shares ISA to build a financial buffer for later on. And I’ve continued investing in UK shares despite the Covid-19 crisis and its implications for the global economy, too. The stock market crash allows you and I to build a five-star portfolio of UK shares for little cost.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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