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3 things you can do TODAY to avoid living off the State Pension

The State Pension is not a large amount of money. Currently, it’s just £164.35 per week. And that’s if you’re actually eligible for the full amount. Not everyone is. For example, if you were contracted out, you may only be eligible for a smaller weekly payment.

However, before you panic about counting your pennies in retirement, understand that there are things you can do today that might help you enjoy a more comfortable lifestyle in retirement. If you act quickly, there’s a good chance you can salvage your retirement and enjoy your golden years in style.

Here are three smart moves that could make you considerably better off.

Open a tax-efficient investment account

The first thing to do in order to avoid living off the State Pension is to open an investing account. And you want this to be a tax-efficient account, so you pay as little tax on your money as legally possible. The more money you can shelter from the taxman, the more you’ll have for your retirement.

There are several good tax-efficient investment accounts here in the UK that are designed to help people maximise their retirement savings. One such account is the Stocks & Shares ISA, in which all investment gains are tax-free. Another is the Lifetime ISA, which is open to those aged 18-39 and has the added benefit of 25% bonuses on your contributions as long as your money is kept in the account until you turn 60 (or buy your first property). Third, there’s the self-invested personal pension (SIPP) which also provides tax relief on contributions. 

Each of these accounts has different features so it’s worth checking to see which one best suits your personal requirements before opening an account.

Set up a direct debit

The next smart move is to set up a direct debit to ensure that you are regularly saving into your investment account. This will prevent you from spending your entire pay-cheque and not saving anything. Work out how much of your salary you want to save per month (i.e. 10%), and then instruct your bank to pay this amount into your investment account as soon as you receive your salary. This will make the process of saving money considerably easier.

Build your portfolio

Once your tax-efficient account is open and your money is regularly arriving in your account, you’ll be able to start building a portfolio that will boost your wealth. You can start thinking about the best investments for your goals, requirements and risk tolerance today. So where do you start?

One option is to consider picking stocks yourself. For example, you could purchase shares in some of the largest companies in the world such as Royal Dutch Shell, Unilever and HSBC and simply pocket the dividends these companies regularly pay. 

Alternatively, if you don’t want to choose stocks yourself, you could purchase a mutual fund, where your money is pooled together with the money of other investors and managed by a professional fund manager. I have discussed some top-performing funds with excellent long-term track records recently. A third option is to simply track the market with a low-cost exchange-traded fund. There are plenty of options, no matter your goals and risk tolerance.

Retirement should be something to look forward to. Start planning for it now so you can live the lifestyle you deserve.

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Edward Sheldon owns shares in Royal Dutch Shell and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended HSBC Holdings. 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.