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No savings at 40? I think buying FTSE 250 shares in an ISA could help you retire early

Having no retirement savings at age 40 may lead many people to think that retiring early is out of the question. After all, time is a major factor in investment returns, and can turn modest sums of money into large retirement nest eggs.

However, at age 40 there may still be time to build a retirement portfolio that provides a passive income in older age. Furthermore, with the FTSE 250 appearing to offer an impressive growth outlook, it could deliver high returns that catalyse your financial future.

Uncertain period

The FTSE 250’s performance has been rather subdued over the last few years. For example, it has risen by just 14% in the last 4.5 years. This equates to an annualised capital gain of just 3% per year.

During this time, the index has faced numerous risks that appear to have caused its performance to be relatively lacklustre. Brexit, of course, has been a major risk that has held back the index. With around 50% of the FTSE 250’s income being derived from within the UK, uncertainty regarding Brexit and the performance of the British economy during the process may have led to weak investor sentiment.

In addition, the international growth outlook has been challenging over recent years. The global trade war may have held back the performance of the FTSE 250’s internationally-focused companies, as well as causing investors to pivot towards less risky assets as their risk aversion increased.

Growth opportunities

The track record of the FTSE 250 shows that the index has always recovered from disappointing periods to post improving growth. For example, over the last two decades, its total annualised returns have been around 9%. This suggests that with the index currently yielding over 3%, it could deliver even stronger performance over the long run. Investors may be able to buy high-quality stocks while they trade on low valuations, which could catalyse the performance of their portfolio.

Furthermore, starting to invest at age 40 could lead to a sizeable nest egg if the FTSE 250 is able to offer an annual return of 9%. For example, investing £250 per month could lead to a portfolio valued at over £250,000 by age 65. This would represent an early retirement compared to the state pension age, which will rise to 67 within the next decade.

Income opportunities

The FTSE 250 may also offer income investing opportunities for retirees. Certainly, the index’s 3% yield may not be especially appealing, but many of its members have 5%+ yields at the present time. Therefore, the index could offer the means to generate a retirement nest egg, as well as the chance to make a growing passive income in older age.

As such, now could be the right time to start buying FTSE 250 shares for retirement. At age 40, it is not too late to start this process, with there still being the potential to retire early.

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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.