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Why I think a Lifetime ISA or a SIPP could boost your retirement savings in 2019

While the FTSE 100 may have gained 6% since the start of the year, investing through a Lifetime ISA or a SIPP could provide even larger gains in the long run. Both products offer financial incentives, in the form of a government bonus for a Lifetime ISA, and the avoidance of income tax for contributions to a SIPP. As such, it could be a worthwhile move to consider utilising them in order to provide a boost to your retirement savings prospects over the coming years.

Lifetime ISA

As mentioned, the Lifetime ISA offers a government bonus. For every £1 invested through a Lifetime ISA, the government will contribute £0.25, up to a maximum of £1,000 per year. While this may not sound like a huge amount of money, given that an investor would need to put £4,000 into the product to gain a £1,000 bonus, over the long run it could really add up.

For example, assuming an individual pays £4,000 into a Lifetime ISA for a period of 30 years, they could have an additional £30,000 to put towards retirement. If they invest it in the FTSE 250 and it delivers the same 9.5% annual total return as it has done over the last 20 years, the government bonus alone could equate to a total of £150,000 by the end of the 30-year time period.

While there are restrictions on Lifetime ISAs, such as only being available to individuals under the age of 40 and contributions not being possible after the age of 50, they appear to offer a simple and rewarding means of planning for retirement.

SIPP

Likewise, a SIPP could boost an individual’s financial situation in older age through tax-free contributions. Depending on the tax rate normally paid, this could amount to significant savings that allow a portfolio held within a SIPP to grow to a larger amount than it would otherwise have done in a standard sharedealing account.

Furthermore, changes to pension rules in recent years mean that there’s greater flexibility on how withdrawals from a SIPP can be made. The first 25% of withdrawals continue to be tax-free, while withdrawals can be made from age 55. Individuals can decide how much they wish to withdraw and when, which may help them to more effectively plan their income requirements in retirement. And with the cost of having a SIPP being relatively low as competition in the online sharedealing space remains high, it may become an increasingly accessible product over the medium term.

Therefore, alongside a Lifetime ISA, there could be significant rewards on offer that make planning for retirement a little easier. Since the FTSE 100 continues to offer a dividend yield of 4.5%, its valuation suggests that now could be a good time to invest for the long term, in my opinion. Although there are risks facing the world economy, the index appears to include a number of stocks that offer wide margins of safety.

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