The Motley Fool

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

Image source: Getty Images.

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.