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The State Pension: do you even know how much it is?

Last weekend, I caught up with an American friend, and we were discussing the UK State Pension versus retirement benefits in the US. I was interested to learn how much money retirees in the US are entitled to.

My friend explained that in the US, you can potentially be looking at social security payments of $34,332 (£26,200) per year, although it will depend on how much tax you’ve paid over your career. When I explained that here in the UK, the State Pension is just £168.60 per week or £8,767 per year, my friend was absolutely shocked. “£8,767 per year! How can anyone live off that?”

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Could you live off £168 per week?

It’s a fair question. £8,767 really isn’t a lot of money when you factor in the cost of living today. In fact, recent research from a respected charity group concluded that you need at least £10,000 per year to live even a basic lifestyle these days. So, living off the State Pension alone in retirement is not an ideal situation, to say the least.

Yet it’s a situation that many people find themselves in. Today, around one in four single retirees lives solely off State Pension payments. For these people, £168.60 has to cover all their expenses. Worrying, isn’t it?

Act now to enjoy your retirement

The bottom line here is that if a comfortable retirement is something you aspire to, then you need to take responsibility for your financial affairs sooner rather than later. This not only means saving money but more importantly, investing your money so that it’s working hard for you.

The good news is that it’s never been easier to do this. Gone are the days of buying shares or funds through an expensive stockbroker – these days you can do it all online within minutes and it’s extremely straightforward and cost-effective. You don’t need a lot of money to get started either. For example, with online broker Hargreaves Lansdown, you can put money into an investment fund with as little as £100. There’s also a wealth of information online – such as the free content here at The Motley Fool – that could help you learn more about how to invest.

Boost your retirement income

The key, however, is to get started sooner rather than later. For example, start investing £2,000 per year at age 45, and you could build up a lump sum of more than £110,000 by age 67, assuming an annual growth rate of 8% (roughly the long-term average growth rate of stocks). Income generated from this portfolio could potentially boost your State Pension payout by over 50%. Leave it until 55 to save though and £2,000 per year would only grow to around £43,000 by age 67 assuming an 8% annual return.

Retirement saving doesn’t need to be complex. But it does need to be a priority. Put a little money away every now and then and invest it properly, and you’ll give yourself a good chance of a comfortable retirement, as you won’t be forced to live off just £168 per week.

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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.