With the State Pension amounting to just over £164 per week, it’s likely that many individuals will need other sources of income in older age. After all, it’s around a third of the average income, which suggests that it may be insufficient to provide retirees with the financial freedom they desire.
With that in mind, here are three moves that you could make in 2019 to boost your retirement savings and income. Doing so could help you to beat the State Pension.
With interest rates expected to remain relatively low over the medium term, the appeal of savings accounts and cash ISAs is likely to be limited. In fact, cash returns are expected to be behind inflation for a number of years, and this could hurt the real-terms value of any amounts invested.
In contrast, shares continue to offer relatively appealing income returns. The FTSE 100, for example, has a dividend yield of over 4.5% at the present time. Even the FTSE 250, which historically has a relatively modest yield, has an inflation-beating income return right now. It yields around 3.2% versus an inflation rate of 2.3%.
Clearly, there are potential risks to stock prices over the short term. But with both the FTSE 100 and FTSE 250 having long track records of strong capital returns, their long-term income-generating potential seems to be high.
Of course, having some cash could be a sound move in 2019. Stock markets have been volatile in recent months, and risks such as Brexit, a slowing Chinese growth rate, and poor US-China relations could cause a further correction in the price levels of the FTSE 100 and FTSE 250.
Keeping some cash in reserve in case of better investment opportunities may allow an investor to capitalise on deteriorating stock markets. However, cash should be utilised over the medium term, and shouldn’t become an investment in itself. As such, and with a range of large- and mid-cap shares currently offering good value for money, it may not require a large fall in stock markets to encourage investors with cash to invest.
As mentioned, 2019 could be a challenging year for the world economy, and for share prices. Any number of political or economic risks could cause investor sentiment to deteriorate, and this could lead to falling share prices.
As such, it may be prudent for investors to focus on the long term, rather than the short run. In doing so, it may be possible to ignore the market noise which is often present during uncertain periods for the wider economy.
Although investors may experience paper losses during the course of the year, investing in stocks with sound long-term futures should mean that income payments continue. Since the stock market is naturally cyclical, those same companies which experience difficulties this year could deliver impressive turnarounds in the coming years.
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