Financial experts often advise us that saving for retirement from an early age is a smart financial move, so you’d think that by the time people reached their mid-50s they’d be well prepared for retirement.
However, many over-55s are not prepared for retirement at all. According to recent research from Close Brothers, nearly half of UK workers (46%) aged 55 or older feel unprepared to retire, with 45% of people in this age group saying that funding their retirement is one of their top three money worries.
Another study by insurer SunLife came up with similar findings. Not only did 40% of people in SunLife’s study aged 55 and over say that their pension savings were lower than they anticipated, but on average, they felt they needed an extra £184,484 on top of their current savings and pensions to have a comfortable lifestyle in retirement.
Clearly, many people aged 55 and over in the UK are very much unprepared for retirement. So, what can they do to boost their pension savings?
Save into a SIPP
One of the easiest ways to boost your retirement savings is to save into a SIPP (self-invested personal pension). The advantage of saving into this type of account, as opposed to saving into a regular savings account, is that the government will reward you for saving for retirement by providing you with ‘tax relief.’
The way this works is that when you make a contribution into a SIPP account, the government will top up your contribution. Basic-rate taxpayers receive tax relief of 20%, meaning that if you contribute £800, the government will add another £200 into your account for you.
This really is a fantastic deal, yet incredibly, around 50% of Britons are completely unaware of it. If you’re in your 50s and unprepared for retirement, saving into a SIPP and taking advantage of the tax relief on offer from the government is one of the smartest moves you can make, in my view, although it’s important to be fully aware of how SIPPs work.
You can open a SIPP within minutes with the likes of Hargreaves Lansdown, AJ Bell, and Interactive Investor.
Use the stock market to grow your wealth
It’s also important to get your money working for you in the lead up to retirement and that means investing in assets that have the potential to generate higher returns than savings accounts over time. The advantage of SIPPs is that they allow you to hold a wide range of stock market-based investments such as shares, investment trusts, and funds, all of which could help you boost your wealth significantly over the long run.
Over the long term, the stock market has been an amazing wealth generator. For example, since the FTSE 100’s inception in 1984, it has risen from 1,000 points to above 7,000 points, which means that, when you add in dividends, it has returned around 9% per year.
Past performance is no guarantee of future performance, of course. But, given the long-term track record of the stock market, if your goal is to boost your retirement savings and you’re willing to invest for a number of years, then it makes sense to have some exposure to stocks, in my view.
With a sensible investment strategy, the stock market could help you close your pension savings gap.
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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.