Having no retirement savings at age 50 is a lot more common than you may think. Around a third of adults in the UK do not have a pension, with one in eight people retiring this year having no retirement plans in place.
Clearly, having your own pension is highly desirable. After all, the State Pension amounts to £8,767 per year, which is around a third of the average annual salary in the UK.
As such, now could be a good time to start planning for retirement – even if it is a modest way. Doing so could lead to a nest egg that provides a passive income to supplement your State Pension in older age.
Long time horizon
With the State Pension age set to rise to 67 by 2028, 50-year-old investors have a long time horizon until they will need to access their pension. In other words, they may be able to invest in riskier assets, such as shares, in order to generate a higher return.
Clearly, this assumes that an investor is comfortable buying shares in terms of their own attitude towards risk. But a 17-year horizon suggests there will be sufficient time to recover from a bear market that causes share prices to fall.
As a result, it could be a good idea to open an ISA or a SIPP and start investing in shares. This could produce higher returns than are available on other mainstream assets such as cash and bonds, which may lead to a larger retirement nest egg.
A good place to start when investing in the stock market is a tracker fund. This aims to mimic the return of an index, such as the FTSE 100 or FTSE 250, at a low cost. In fact, many tracker funds now charge less than 0.1% per annum in fees, thereby making them a cost-effective means of gaining exposure to the stock market and obtaining a high degree of diversification.
Tracker funds can be invested in regularly from as little as £1.50 per trade across a wide range of sharedealing providers. Setting up a standing order and regular investment each month could be a sound means of building up a portfolio which one day can provide a passive income in retirement.
While many investors may focus on growth shares in order to build a retirement portfolio, investing in dividend shares can prove to be a shrewd move. They may increase in popularity among investors over the coming years due to the prospect of a low interest rate remaining in place. They also contribute a significant proportion of total returns in many cases.
As such, adding dividend stocks to your portfolio over the long run could be a sound move. They may also be able to provide a generous passive income that grows at a faster pace than inflation, thereby reducing your reliance on the State Pension.
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