Building a retirement portfolio that can provide a passive income in older age is never an easy task. Starting from zero at age 40 and retiring early may, therefore, seem to be impossible for many people.
However, the reality is that through buying a diverse range of FTSE 350 growth shares in a tax-efficient account, it is possible to build a surprisingly large nest egg within 10-20 years.
As such, starting to live within your means today could be a sound move that helps you to retire earlier than you had previously envisaged.
Live within your means
In order to build a retirement nest egg, you must have capital available to invest in assets such as shares. As such, budgeting each month to ensure that your spending is lower than your income could be a sound move. It does not necessarily need to be an extremely detailed budget. But going through the budget process could identify areas where savings can be made without significantly impacting upon your lifestyle.
Another means of saving money each month could be to set up a direct debit on payday. This may make it easier to save for the many people who tend to spend whatever amounts are in their current account each month.
Open a Stocks and Shares ISA
A Stocks and Shares ISA is a very simple product. It is a type of account that enables you to purchase a wide range of assets, such as shares, without paying any tax on gains, dividends or other income.
It is cheap to maintain, with the cost of doing so being similar to the commission charges on one trade in many cases. And with a Stocks and Shares ISA not being subject to tax on withdrawals, it makes budgeting in retirement a lot simpler than when tax considerations must be taken into account with a SIPP or employer pension scheme.
Invest for growth
At 40 years old, there are still many years left of working until retirement. As such, many people may be able to focus on capital growth when investing. This could mean that more volatile shares in the FTSE 250 are appealing, since they could deliver higher annual returns that ultimately provide a larger nest egg in older age.
Certainly, shares can produce losses in the short run. Therefore, it is crucial to reduce risk through diversification. One means of doing so could be to buy tracker funds, although the low cost of share-dealing means that it is cheaper than ever to build a diverse range of individual stocks that can outperform the wider index over the long run.
Although it may take a number of years to build a nest egg that can produce a generous passive income in older age, starting at age 40 is not too late. The past performance of the stock market shows that high returns can be achieved over a long-term period.
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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.