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Why opening a Lifetime ISA could supercharge your retirement savings

Saving for retirement does not need to be a time-consuming or challenging process. Products such as a Lifetime ISA provide a low-cost, simple means of saving for older age through a tax-efficient platform. As such, for anyone under the age of 40, opening one today could be a worthwhile move that boosts your retirement savings prospects in the long run.

Best of both worlds

While contributions to a pension benefit from tax credits, Lifetime ISAs offer government bonuses of up to £1,000 per year. This is paid at a rate of 25% of contributions up to the annual allowance of £4,000 per year.

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Unlike a pension, though, there is no tax to pay on withdrawals from a Lifetime ISA. They can be undertaken after the age of 60. This could make Lifetime ISAs more appealing than a pension, since they offer an incentive to save, as well as greater flexibility in terms of being able to withdraw capital without paying tax.

Lifetime ISAs also offer investors greater flexibility before the age of 60 when compared to a pension. Withdrawals can be made to fund the purchase of a first home, which may provide younger investors with a greater incentive to save a higher proportion of their income in the short run. By contrast, amounts invested in a pension are locked away until the age of 55.

Accessibility

Lifetime ISAs are accessible to a wide range of people. They are generally straightforward to open online, while their costs are relatively low. And with it being possible to invest in a variety of shares, now could be a good time to consider opening a Lifetime ISA.

Although the FTSE 100 and FTSE 250 have risen significantly since the turn of the year, there are a number of stocks which continue to trade on low valuations. For example, Brexit-related risks have caused retail shares to offer wide margins of safety, while concerns surrounding the prospects for the Chinese economy may mean that global consumer goods stocks offer good value for money.

For investors who are more cautious, healthcare stocks and other companies that offer defensive characteristics may offer investment appeal. Given that there has been a decade-long bull market, such stocks may not be as popular as cyclical shares at the present time, so it could be possible to buy them at relatively low prices.

Long-term investment

Of course, it will take time for amounts invested in shares through a Lifetime ISA to deliver a sufficient nest egg for retirement. However, with the government bonus and the lack of tax on withdrawals after age 60, a Lifetime ISA could provide a boost to your income in older age. With the stock market appearing to offer investment appeal, now could be a good time to buy a variety of stocks in order to boost your long-term retirement savings.

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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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