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Forget the State Pension. Here’s what I think you should do for a richer retirement

In this article, I’m not for a second trying to suggest there’s only one way to achieve a richer retirement. However, I believe there are steps everyone can take to increase the chances of having a retirement that’s fulfilling and more prosperous than simply relying on the very low State Pension. To maintain your lifestyle once your working life comes to an end, it is often advised that you need between half and two-thirds of the salary you earned before retirement. In my opinion the key to building a pot of money this large within a working life is best achieved by investing in shares.

Invest as much as possible as early as possible

When it comes to investing in the stock market, the more time your money is put to work accumulating dividends and hopefully growing in value, the more the pot of money at the end will be worth. As such, investing as early as possible is vital. Added to that, it’s critical to invest as much as possible. Combined, these two factors largely determine what kind of retirement you will have.

What I’m trying to say is that you need to take control. If you have a vision of the sort of retirement you want, then take steps to make it happen. Put aside money today and make that money work for you by investing in shares. Without investing, it becomes far less likely you’ll be able to accumulate the cash needed to achieve everything you might want to once you stop working.

Rich retirement, poor retirement

Doing some quick calculations it’s easy to see the impact that both time in the market and percentage growth have on what a person could end up with once they stop working. If I, alongside my employer, put 3% of my salary each into a pension from now until I’m 67, I’ll end up with a pension worth £147,000 after about 40 years. However, if I delay starting by 10 years, I will get nearly £60,000 less when I retire. So, the amount of time money is invested for is a major factor between a rich and a poor retirement.

The other big factor to highlight is the amount put in. If I raise my contribution to 10% (so around £291.67 per month) and my employer goes to 5%, my retirement fund more than doubles, going up to £341,000, provided I don’t delay in starting. If I increase my contributions by just an extra £50 a month, the retirement pot would be £37,000 higher. 

The reason to get going

With more and more workers feeling they have to go on earning beyond the official retirement age, now has never been a more important time to take charge of your destiny as early as possible. Life expectancy is heading up, so everyone needs to take responsibility and put aside money to build a pot that will help them look after themselves when they stop working.  

This is why it’s better not to wait. The calculations in this article should show why investing more, for a longer period of time, allows the benefits of compounding to take place – earning interest on interest. Over a long timeframe, stock markets reward most investors well, whether they manage their investments via tracker funds or select individual stocks.

Who doesn’t want to achieve financial independence?

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Andy Ross has no position in any of the shares mentioned. 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.