No savings at 50? You can double your State Pension with a passive income

At age 50 you still have time to double your State Pension, says Harvey Jones.

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.

If you haven’t built much retirement savings by age 50, you can’t afford to waste anymore time. The basic State Pension is currently worth £8,767.20 a year, and you don’t want to live on just that.

Double your money

The sums you must save to catch up for those lost years can appear daunting, but don’t stick your head in the sand any longer. You can still build enough from the stock market to match what the state pays, effectively doubling your income. Here’s how I’d go about it.

The first question is how much do you need in your pension pot to generate £8,767 a year? If you plan to buy an annuity, my calculations suggest you’ll need around £175,000 by age 65, assuming you buy a level, single life annuity.

If you want to buy an annuity that rises by 3% a year to keep pace with rising prices, you’ll need £235,000, which will generate around £8,767.20 in the first year.

So what do you save?

Let’s stick with my original £175,000 figure. How much do you need to invest to build that sum in, say, 17 years (assuming you retire at 67)?

If the money you invest grows at an average rate of 7% a year on the stock market, you’ll need to invest £450 a month. That would give you £178,195 after 17 years.

Now £450 a month may sound daunting, but that’s the problem with leaving it so late to get started. If you can cut back on your everyday spending, it might be doable.

Fewer people now want to buy an annuity, which you won’t find surprising, given today’s low rates. The majority now prefer to leave their money invested in the stock market for further growth, and withdraw a percentage every year to fund their retirement spending.

Another attraction of this approach is that, unlike an annuity, you get to keep your capital.

The ‘safe withdrawal rate’, which means your pot should never deplete, is 4% a year. If you want to generate income of £8,767.20, you’ll require just over £219,000 in your pot. To achieve that from age 50, you have to up your savings to just over £550 a month.

Your choice of investments

The next question is where to invest the money? Some of you may want to build a portfolio of individual stocks and shares. If so, here are three stocks you could consider for a FTSE 100 starter portfolio.

A simpler alternative would be to take out a FTSE 100 tracker, such as the hugely popular exchange traded fund iShares Core FTSE 100 ETF. This has no initial fee and rock bottom charges of just 0.07% a year. You could combine it with a FTSE 250 tracker or, for greater diversification, a global ETF such as the Vanguard FTSE All-World UCITS ETF.

There’s little point putting your retirement savings in a Cash ISA, as you’ll struggle to generate more than 2% a year, which isn’t enough to build the pot you need at this stage.

With luck, you can double that State Pension, which would give you £17,534 a year. That isn’t spectacular, but it’s more than you’ll have if you do nothing.

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.

Harvey Jones has no position in any of the shares 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

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »