At the time of writing, the full new State Pension is £168.60 a week or £8,767.20 a year, a minuscule amount compared to the average UK wage of around £29,000 per annum.
What’s even more concerning is that according to figures from the Department for Work and Pensions, of the 1.1m who receive the new State Pension, only 44% receive the full amount.
These numbers suggest that most retirees cannot trust the State Pension to fulfil their income requirements in retirement. With that being the case, I think savers should ignore the State Pension altogether and build up their own safety net instead.
Here are my three tips to help you do just that.
Open a SIPP
My first piece of advice is to open a Self-Invested Personal Pension. These tax-efficient products allow you to manage your own pension savings, and any money contributed receives a tax benefit at your marginal tax rate (20% for basic ratepayers).
This extra government contribution can have a considerable impact on your savings over the long term. So it’s worth making the most of it while you can.
Invest your money
If you’ve already opened a SIPP, my next tip is to start investing your money. Rates vary from provider to provider, but most SIPPs do not offer an interest rate on cash of more than 1%, which isn’t going to help you if you want to retire wealthy.
In comparison, over the past 10 years, the FTSE 250 has produced an average annual return in the region of 9%, a performance that can be replicated easily using an FTSE 250 tracker fund.
According to my figures, an initial investment of £10,000 invested in the FTSE 250 with additional monthly contributions of £250 would be worth just under £1.4m after four decades of saving. That is enough to provide an annual income in retirement of £56,000, according to my numbers.
The same lump sum and monthly contributions would grow to be worth just £162,000 at an interest rate of 1% per annum.
Leave it to the experts
My third and final tip to retire wealthy is to leave your investing to the experts. Various studies have shown that individual investors who pick their own stocks tend to underperform the market over the long term.
The good news is that today there are so many different funds and trusts out there on the market, investors are spoilt for choice. There’s no need to try and manage your money yourself.
You can buy one of these products and let the managers do all the hard work for you. If the research is to be believed, you will do much better over the long term as well.
Tracker funds are also a great alternative. As mentioned above, the FTSE 250 has produced an average annual return in the region at 9% over the past 10 years.
Most tracker funds charge less than a quarter of the fees that active managers do, which means that you can keep more of your hard-earned money, savings that could potentially add up to tens of thousands of pounds over the decades.
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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.