The Motley Fool

Worried about the State Pension? I think the Aviva share price could help you retire early

With the State Pension age set to rise to 68 for both men and women over the next 20 years, planning for retirement may become increasingly tough. So buying shares such as Aviva (LSE: AV) could be a good move to help you secure a second income. The company appears to offer a sound long-term growth strategy that could lead to a rising share price.

Alongside another stock which released upbeat results on Tuesday, the FTSE 100-listed insurance business may be worth buying for the long run.

Improving prospects

The company in question is rental equipment specialist Ashtead (LSE: AHT). Its third quarter results showed a rise in underlying rental revenue of 19% to £1049.1m, with operating profit rising 21% to £297.2m. Strong demand in North America boosted the company’s performance, with bolt-on acquisitions helping to complement organic growth. During the quarter, it invested £491m in acquisitions, with the investment reflecting the structural growth opportunity it continues to see.

Looking ahead, Ashtead plans to broaden its product offering and geographic reach, aiming to increase market share. It expects capital expenditure for the year to be towards the upper end of previous guidance, which could lead to improved financial performance in the long run.

With the stock forecast to post a rise in earnings of 28% in the current year, followed by growth of 13% next year, it seems to have a bright future. Its price-to-earnings growth (PEG) ratio of 1.1 suggests investors may not yet have fully factored in its profit growth prospects.

Margin of safety

Aviva could also offer impressive long-term prospects. The company has been in the news this week following the announcement of a new CEO. This could lead to improved investor sentiment, with the company having experienced a mixed period since its previous CEO announced his resignation last year.

Looking ahead, the business appears to be in good shape to generate improving financial performance. It’s set to continue with a programme of targeted acquisitions, while also seeking to improve its balance sheet strength. This could lead to a more appealing risk/reward ratio at a time when the outlook for many of its established and growing markets remains uncertain.

In terms of Aviva’s valuation, its price-to-earnings (P/E) ratio of around 7 suggests that it could offer good value for money. A margin of safety may be worthwhile given the management changes that have taken place, as well as the uncertain prospects for the world economy. However, such a low rating suggests investors may have adequately priced in the risks which the company faces.

As such, buying the stock now could be a worthwhile move, since it offers long-term capital growth potential at a relatively low share price. Since the State Pension age is expected to rise, Aviva could help investors to generate a second income in older age.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

Peter Stephens owns shares of Aviva. 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.