Forget the State Pension. I think you can retire wealthy with these 3 tips

At less than £9,000 a year, most retirees say they can’t live off the State Pension alone. Here are three tips to make sure you don’t have to.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »