With the State Pension age expected to rise to 68 in the next two decades, many people may be somewhat concerned about their retirement plans.
Furthermore, the State Pension currently amounts to just £8,767 per year. Since this is around a third of the average salary in the UK, it is unlikely to be sufficient to provide financial freedom in older age for many people.
As such, buying FTSE 100 dividend shares could prove to be a good idea. They could deliver long-term growth, with these two large-cap shares appearing to offer wide margins of safety at the present time.
Prime housebuilder Berkeley Group (LSE: BKG) has a solid balance sheet through which to overcome the current challenges faced by the London property market. For example, it has a near-£1bn net cash position, while its plans to diversify across a variety of UK regions could reduce its reliance on the future direction of the capital’s property market.
Furthermore, the company trades on a price-to-earnings (P/E) ratio of just 12. This suggests that investors may have priced in the potential risks faced by the business, with political and economic uncertainty likely to weigh on its financial prospects over the near term.
With a generous capital return plan that could yield as much as 5% per annum over the medium term, the investment potential of the business remains high. In fact, buying housebuilders such as Berkeley Group while the property market is experiencing a downturn could prove to be a sound move. History shows that doing so can lead to high total returns in the long run.
Another FTSE 100 stock that could help you to overcome the risks posed by a rising State Pension age is Aviva (LSE: AV). As with Berkeley Group, Aviva is a relatively cheap stock. It trades on a P/E ratio of just 6, which suggests that investors may be anticipating a period of weak financial performance from the business.
Aviva is currently making changes to its operations. For example, it is seeking to reduce debt under a new CEO, while it is reviewing the potential opportunities for growth within its Asian business. This could mean there is a period of uncertainty ahead – especially with global risks such as a trade war between the US and China, as well as Brexit, set to continue over the coming months.
Since the stock currently yields around 9.2%, it seems to offer the potential for investors to generate high total returns in the long run. Its dividend payout is covered around twice by net profit, which suggests that it has ample headroom when returning capital to its shareholders. As such, for income and value investors, Aviva could offer the opportunity to overcome the disappointing State Pension outlook and build a large nest egg in order to retire early.
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Peter Stephens owns shares of Aviva and Berkeley Group Holdings. 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.