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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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.