At the time of writing, the full basic State Pension for retirees is £168.60 per week, or £8,767.20 per annum.
Unfortunately, this income falls far short of what many pensioners believe they need to retire in comfort. According to a recent survey by consumer magazine Which?, most retirees spend around £2,250 a month per household, or £27,000 a year.
This is just an average figure, and the actual amount required to retire in comfort will vary from case to case. However, Which?’s findings are based on the answers of more than 6,000 real retirees, so they are fairly reliable.
How much do you need
According to the survey, respondents spent £27,000 a year, on average. Essential expenditure (food and housing) was just £17,800 per year. Luxury expenses such as European holidays and eating out made up the difference.
Meanwhile, retirees who enjoyed long haul trips away and a new car every few years spent an average of £42,000 a year.
The average State Pension for retirees varies, depending on many different factors. These include your National Insurance contribution record and whether or not you qualified for the State Pension after April 2016.
Nevertheless, retirees living on the State Pension alone will not have the same level of income that the Which? survey suggests is needed to cover even the essential expenses in retirement.
With that being the case, today I’m going to explain how you can double your State Pension with £2 a day, helping you reach that £17,000 per annum income target.
Building the pot
Saving just £2 a day or £730 a year might not seem like a tremendous amount of money, but over the long term, these regular contributions add up.
On top of this, pension savers can pick up some attractive tax benefits. For example, any money saved in a SIPP will be topped up by the government. The exact amount of tax relief every saver is entitled to depends on their marginal tax rate. Most basic rate taxpayers will be entitled to relief of 20%. That means for every £1 contributed, the government will add 20p, turning your annual contributions of £730 into approximately £912 (or £76 per month).
Time to invest
The best way to grow this money is to invest it. Over the past 10 years, the UK’s leading blue-chip stock index, the FTSE 100, has produced an average annual return for investors of 7% including dividends.
At this rate of return, it would take around 40 years to save £200,000, which is enough, according to my calculations, to double your State Pension in retirement.
Four decades of saving might seem like a long time, but the sooner you start saving for the future, the better. Indeed, as I have explained above, you can build a pension pot worth £200,000 with just two pounds a day if you start saving early.
If you try to reach the same goal with only 10 years to go until your targeted retirement date, my numbers show that you would have to save more than £1,700 a month to put away £200,000.
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Rupert Hargreaves owns no share 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.